EUROPEAN FX UPDATE: Sterling supported by yield correction before confidence vote

Analysis details (10:21)

GBP/DXY/EUR

The Pound is showing little sign of a post-Platinum Jubilee hangover or political jitters ahead of the impending vote of no confidence in PM Johnson as it gleans traction from catch-up trade in Gilts and short-term rates following the 4-day holiday weekend to mark the 70 year reign of Queen Elizabeth 2nd. In fact, Cable is extending recovery gains towards 100 pips as it probes the 10 DMA circa 1.2569 today and Eur/Gbp has retreated to test 0.8550 from around 0.8589 even though the Euro is benefiting from Sterling strength via the Dollar index and another retreat in EGBs in the run up to Thursday’s ECB policy meeting. Indeed, Eur/Usd is hovering near 1.0750 as the DXY reverses from 102.210 to 101.840 and holds just above recent lows within a tight 101.760-640 range in advance of US employment trends on a very sparse Monday agenda.    

NZD/AUD/CAD

Also benefiting at the Greenback’s expense alongside a pick-up in risk appetite to the extent that the Kiwi has reclaimed 0.6500+ status in the absence of many NZ participants that are belatedly celebrating the Queen’s birthday, but seeing tailwinds from Aud/Nzd as well given some Aussie caution awaiting the RBA overnight. The cross is softer between a 1.1080-60 band and Aud/Usd capped into 0.7250 in anticipation of another rate hike, but caught between 25 bp or 40 bp. Elsewhere, the Loonie contained declines to 1.2601 with some impetus via another rise in WTI following Saudi’s increase in crude prices and China lifting more Covid restrictions in Beijing, with Usd/Cad closer to 1.2550 on the eve of Canadian trade data and Ivey PMIs.

CHF/JPY

The Franc and Yen are both fractionally firmer against the Buck, but largely due to their US peer’s pullback as the revival in risk sentiment and yield backdrop is far from favourable, especially for the latter in wake of latest comments from BoJ Governor Kuroda who underlined dovish policy intentions and the pluses of a weak Jpy, as long as moves are not too sharp. Hence, Usd/Chf remains above 0.9600 and Usd/Jpy is mostly over 130.50 from a 130.99 peak pre-Japanese household spending on Tuesday.

EM

No joy for the Try on the back of the CBRT’s move to lift the discount rate for CPI-linked securities for collateral to 30% from 15% or 45% for Government bonds in the swap market, while the Czk was undermined by weaker than forecast Czech ip and a wider than expected trade deficit amidst uncertainty over CNB policy, as outgoing Governor Rusnok contends that all things point to another hike on June 22, but Holub expresses uncertainty about the balance between hawks and doves pans out given recent new appointments.

06 Jun 2022 - 10:21- Fixed IncomeEconomic Commentary- Source: Newsquawk