EUROPEAN FX UPDATE: some role reversal as yields retreat and sentiment stabilises

Analysis details (10:48)

DXY

The Buck may simply be suffering from the excesses of its own success and a sense of overbought symptoms, but some rival currencies are also staging a comeback independently or indirectly and the Dollar index could have lost momentum having faded just shy of yesterday’s new y-t-d peak, at 105.260 vs 105.290 before drifting back below 105.000 to 104.610. Moreover, Greenback bulls are probably pausing for breath and paring long positions on the eve of the Fed policy pronouncements after virtually pricing in a 75 bp hike compared to the half point flagged before the pre-FOMC blackout period, and awaiting US PPI for further pointers.

CHF/EUR

A rather unexpected, if not shock boost for the Franc from Russia where the Moscow Exchange suspended Chf transactions against the Rub and Usd with immediate effect, in response to EU sanctions. Usd/Chf gradually retreated to test support around 0.9900 following Monday’s near parity high and Eur/Chf eased bact towards 1.0350 from close to 1.0400, even though the Euro took advantage of the Buck’s retracement to secure a firmer grip of the 1.0400 handle. In fact, Eur/Usd left decent option expiry interest between 1.0415-20 (1.22 bn) well behind with some added traction from hawkish ECB commentary (Knot advocating a bigger than signalled 25 bp rate rise in September, if things stay the same as they are now) in the run up to a downbeat German ZEW survey.

GBP  

Sterling could not sustain gains above 1.2200 vs the Dollar or defend 0.8600 against the Euro based on just one bright spot in an otherwise overcast ONS UK jobs and earnings update, and given the threat of legal EU reprisals to new NI Protocol proposals.

AUD/JPY/NZD

All firmer vs their US peer, but off best levels as broad risk appetite fades after an encouraging start to the session that bore some hallmarks of a turnaround Tuesday. Aud/usd is holding above 0.6900, but sub-0.6950 in wake of a warning from Beijing that it needs to go all out to stop the spread of its bar-linked Covid outbreak and more recent hawkish rhetoric from RBA Governor Lowe (uncertain if reasonable 2.5% peak in rates will suffice - see 10.36BST post on the Headline Feed for more), Usd/Jpy is over 134.00 within a 133.87-134.82 range following more concerted BoJ efforts to keep JGB yields inside YCC limits and Nzd/Usd is hovering near 0.6250 after a pick up in NZ food prices and pre-Q1 current account data.

CAD

The Loonie is lagging beneath 1.2900 vs its US counterpart in advance of Canadian manufacturing sales and regardless of a firm bounce in crude prices as prospects of a ¾ point Fed hike rise to close the gap between BoC and Fed benchmark rates.

SCANDI/EM

Clear divergence and outperformance or resilience in the Sek on the back of another set of stronger than anticipated Swedish inflation readings that will give the Riksbank grounds to tighten the repo this month, while the Nok is not benefiting from Brent’s revival as the latest Norges Bank regional network survey highlights the adverse impact of capacity constraints and high inflation on the growth outlook. Elsewhere, intervention from the HKMA to preserve the Hkd peg, new CBRT debt and FX depo rules stating that banks must hold bonds with a minimum 5 year maturity and state banks supporting the Inr before and after the release of firmer than forecast Indian WPI metrics.

14 Jun 2022 - 10:48- Fixed IncomeData- Source: Newsquawk