EUROPEAN FX UPDATE: some solace for Sterling after overnight slide

Analysis details (10:14)

GBP/DXY/EUR

The Pound remained under immense pressure post-smaller than priced BoE hike and far from ‘mini’ UK budget, albeit off worst levels and squeezy after a ‘flash crash’ in APAC trade that was reminiscent of its rout in wake of the vote for Brexit. Cable bounced from a fresh all time low somewhere in the region of 1.0350, or even lower according to several trading and price platforms, with the latest collapse compounded by the fact that IMM spec accounts had cut short positions in Sterling ahead of the BoE and budget last week. Moreover, Chancellor Kwarteng alluded to further tax cuts over the weekend as he focuses on growth and the longer term economic outlook rather than market moves in reference to the carnage seen on Friday. On that note, Cable has many gaps to fill having plunged so far in such short order, and starting with 1.0856 before targeting more all the way back up to last Thursday’s 1.1365 high, but struggled above 1.0750 and into 1.0800, while Eur/Gbp peaked well beyond 0.9200 and faded towards 0.9000 as the Euro waned just over 0.9700 against the Greenback. For the record, Eur/Usd did not react much to results of Italy’s election that chimed with the polls pointing to a far right win or weaker than expected German Ifo survey metrics even though the accompanying commentary was bleak. Indeed, the headline pair recovered some poise alongside Cable from a sub-0.9600 trough and this contributed to downside in the Dollar index from its loftier 2022/multi-year apex within a 114.580-113.060 range.

CHF/JPY     

Both down against the Buck, though clawing back losses from around 0.9874 and 144.26 respectively, with the latter paying some heed to another round of Japanese verbal intervention, including BoJ Governor Kuroda backing last week’s MoF action.

CAD/NZD/AUD  

Soft crude and other commodity prices are weighing on the Loonie, Kiwi and Aussie to the extent that a partial revival in EU equities following further declines in global peers has kept Usd/Cad elevated between 1.3560-1.3639 parameters, Nzd/Usd depressed within a 0.5759-0.5694 band and Aud/Usd capped from 0.6538 to 0.6483. Note also, the latter pairing faces decent option expiry interest 0.6550 given 1.1 bn rolling off at the NY cut.

EM

Broad depreciation vs the Usd, irrespective of ‘triple’ intervention from the BI in an attempt to shore up the Idr and the PBoC imposing a 20% risk reserve requirement for FX forward sales as of Wednesday to try and rein Cny/Cnh weakness. Elsewhere, the Try was undermined by a deterioration in Turkish manufacturing confidence, the Zar fell in tandem with Gold and the Huf underperformed awaiting a speech from Hungarian PM Orban to parliament.

26 Sep 2022 - 10:14- Fixed IncomeEconomic Commentary- Source: Newsquawk