EUROPEAN FX UPDATE: Sterling and Yen flank ranks on data and policy outlooks

Analysis details (10:08)

GBP/JPY/DXY  

The Pound finally punched through resistance against the Dollar on the back of hotter than expected UK inflation data, but made more gains vs the Yen on divergent BoE/BoJ policy perceptions as Cable topped out around 1.2472 compared to a low just above 1.2400, while the Gbp/Jpy cross continued to rally towards 168.00 from 166.49 or so. However, Sterling also cleared several technical levels against the Euro through 0.8800 and the Yen probed support vs the Buck at 134.75 (61.8% Fib of last month’s downturn in Usd/Jpy) as markets fully priced in a 25 bp BoE hike for the May MPC meeting, with a tinge of 50 bp probability at one point, and took note of more dovish-sounding BoJ commentary via executive director Shimzu who reaffirmed the view that CPI will retreat below 2% by mid-year and it is appropriate to continue easing for now. Meanwhile, the Greenback was largely victim of circumstance as it tracked Cable one way and then Usd/Jpy in the other direction, or vice-versa, with the index peaking at 102.010 from a 101.650 trough.

EUR/CAD/AUD/NZD/CHF

All softer against their US rival as yields ramped higher and broad risk sentiment soured as a result of the bearish bond reaction to latest stronger than forecast price metrics (SA CPI adding to the aforementioned UK beats), The Euro faded between 1.0983-47 parameters having formed a virtual twin top, but held above decent option expiry interest from 1.0940-30 (1.3 bn) as a counter to more upside expiries around 1.1000 (1.2 bn from the round number to 1.1015 on this occasion). Elsewhere, the Loonie was also undermined by a sharper retracement in WTI (sub-Usd 80/brl) as it slid beneath the 200 DMA towards the 10 at 1.3435 ahead of Canadian PPI and RMP updates, and irrespective of BoC’s repeating that Bank cannot rule out another rate hike to curb inflation. Similar story for the Aussie and Kiwi as other commodities retreated, with Aud/Usd waning on the 0.6700 handle and Nzd/Usd losing 0.6200+ status awaiting NZ CPI, while the Franc only got a fleeting fillip from SNB’s Maechler noting that  inflation is back with a vengeance and monetary policy is back to the traditional tools, adding that the Bank is ready to sell foreign currencies. Indeed, Usd/Chf retested offers into 0.9000 from a circa 0.8957 base.

SCANDI/EM

No shock to see the Nok and Mxn tumble with crude, but the Try failed to benefit even though Turkish consumer confidence improved as the latest CBRT survey revealed an uptick in the year-end CPI projection and a lower Lira, while the Zar could not glean impetus from firmer than expected SA inflation given another marked reversal in Gold below Usd 2k/oz and Tuesday’s session low, and the Cny/Cnh recoiled to sub-6.9000/6.9100 respectively regardless of China’s NDRC formulating measures to revive and expand consumption.

19 Apr 2023 - 10:08- Fixed IncomeData- Source: Newsquawk