EUROPEAN FX UPDATE: safe havens flag due to loss of risk premium

Analysis details (10:00)

DXY/CHF/XAU

In similar vein to this time last week, safe havens lost ground in relative relief that Middle East hostilities did not escalate over the weekend. In fact, Hamas released a couple of hostages for humanitarian reasons and the US persuaded Israel to delay its planned assault on Gaza in an effort to get more people released. In response, the Franc and Gold retreated from Friday’s highs near 0.8900 and Usd 2000/oz against the Dollar that was underpinned within a 106.050-330 range in index terms by a rebound in US Treasuries and reversion to bear-steepening. Usd/Chf topped 0.8950 and also took heed of IMM positioning as the oversold base increased to a nigh on one year high, while support for Switzerland’s right wing People’s Party (SVP) increased to almost 30% in the latest Federal election. Conversely, Xau/Usd retreated towards Usd 1964 from around Usd 1981.50.

JPY/AUD/CAD/NZD

All narrowly mixed vs the Greenback, but rangy and in familiar territory as the Yen kept its head just afloat of 150.00, but barely even though sources reported that BoJ officials are mulling another tweak to YCC settings because domestic long-term interest rates are rising in tandem with those in the US. However, Usd/Jpy was also capped by expiry interest given 1.7 bn at the round number and 1.2 bn at 150.25, while the Aud/Jpy cross had an even heftier 2.2 bn rolling off on the upside between 0.9425-35 and this may have helped the Aussie retain 0.6300+ status ahead of flash PMIs. Elsewhere, the Loonie lost some traction from oil that came off the boil and the Kiwi continued to lag its Antipodean peer, as Usd/Cad climbed from 1.3696 to 1.3735 before topping out and Nzd/Usd drifted down from 0.5834 to 0.5818.

EUR/GBP

Both a bit firmer against the Buck as EGBs and Gilts retreated alongside USTs and the Euro bounced from 1.0572 to 1.0610 through 1.1 bn option expiries at the big figure, while Sterling may have breathed a sigh of relief after S&P reaffirmed its AA/A-1+ rating for the UK with a stable outlook as Cable rallied from 1.2145 to 1.2184.

SCANDI/EM

The Nok and Sek were undermined by renewed aversion and the former also took on board declines in Norwegian gas and oil production, but the Idr and Inr were propped up by more BI and RBI intervention and the Cny and Cnh pared some losses after PBoC set a slightly firmer onshore midpoint fix and injected Yuan 702 bn net 7-day liquidity.  On the flip-side, the Czk failed to glean support from CNB's Prochazka saying that market expectations for two rate cuts in 2023 and 3.5% by the end of next year is a quick pace of easing and the Bank does not feel rates should fall that swiftly, and the Try did not derive comfort from a rise in Turkish consumer confidence.

23 Oct 2023 - 10:00- Fixed IncomeResearch Sheet- Source: Newsquawk