EUROPEAN FX UPDATE: Sterling slumps as UK CPI disinflates more than anticipated

Analysis details (09:57)

DXY/GBP

Softer than forecast inflation data hit the Pound much harder than one might have expected, and perhaps due to the fact that headline and core CPI both dipped below psychological levels, to 7.9% y/y and 6.9% y/y from 8.7% and 7.1% respectively. However, the adverse reaction may also have been exacerbated by inflation bucking the recent trend of upside surprises and the core rate missing consensus for an unchanged reading. In the event, Cable probed Fib support at 1.2933 having breached the 10 DMA (1.2972) and 1.3000 along the way, while Eur/Gbp jumped around 70 pips from 0.8608 even though the Euro felt some contagion or sympathy with Sterling as the Dollar and index gained at its expense. Indeed, the DXY extended to 100.300 from a 99.923 low awaiting independent impetus via US housing metrics in the form of weekly MBA mortgage applications, housing starts and building permits.

JPY/AUD      

The Yen extended its retreat vs the Buck in wake of BoJ Governor Ueda’s latest dovish policy reiterations and as technical impulses continued to flip from bearish for Usd/Jpy to bullish following a period of corrective price action. The headline pair rebounded from 138.77 to 139.68 as a result and also provided the Greenback with a prop generally. Elsewhere, the Aussie bore the brunt of renewed Yuan weakness amidst ongoing Chinese growth slowdown concerns, but also some caution ahead of the latest labour market report with implications for the RBA that is still caught between further tightening or holding fire. Aud/Usd retreated from 0.6820 to 0.6769 before gleaning some traction and looked for chart support from a Fib at 0.6820.

CAD/EUR/NZD/CHF

Buoyant oil prices kept the Loonie afloat against its US counterpart following Tuesday’s sub-forecast Canadian inflation prints as Usd/Cad idled within tight 1.3163-84 confines, while the Euro survived a test of 1.1200 with the aid of the aforementioned Eur/Gbp cross tailwinds and gains in Eur/Jpy on divergent ECB/BoJ rate dynamics. Eur/Usd regained 1.1200+ status, but was capped by semi-psychological resistance aligned with 1.6 bn option expiry interest at the 1.1250 strike. Meanwhile, the Franc made way for its recovering US peer between 0.8568-99 parameters and the Kiwi only got a short-lived reprieve from marginally firmer than forecast NZ CPI as q/q and y/y measures still slowed from previous levels. Nzd/Usd reversed from 0.6315 to 0.6226 at one stage, though Aud/Nzd pared back within a 1.0881-00 range on relative Aussie underperformance.

SCANDI/EM

Some payback for the Sek and Nok vs the Eur after outperformance on dovish vibes from an ECB hawk yesterday, while the Zar was hampered by software than consensus SA headline and core CPI, the Cny and Cnh by downbeat Chinese fundamentals and the loss of 21 DMAs, and the Ils by reports that Israel's Parliament is to hold its final vote on the highly-contested bill that would curtail the power of the Supreme Court next week.

19 Jul 2023 - 09:57- Fixed IncomeData- Source: Newsquawk