EUROPEAN FX UPDATE: tides turn in favour of the Yen mainly, but Dollar aside

Analysis details (10:22)

DXY/JPY

Far from all change, but the Greenback gleaned some traction in wake of the eagerly awaited SLOOS showing a tightening of credit availability and weaker demand for commercial and industrial loans to large and middle-market firms as well as small firms over Q1, though no worse conditions than Fed Chair Powell intimated during his latest post-FOMC meeting press conference. Moreover, the semi-annual FSR stated that recent turmoil in the banking industry has stabilised, but could weigh on credit conditions going forward and the sector overall remained resilient with substantial loss-absorbing capacity. The Dollar index bounced off a higher 101.350 low to 101.570 before pivoting 101.500 and could arguably have rebounded further without a firmer retracement in the Yen amidst softer US Treasury yields and comments from BoJ Governor Ueda were hawkish-leaning. In short, he underlined that if the price target is met in a sustainable manner, the BoJ will end YCC and then shrink its balance sheet, while adding they are seeing some bright signs, including inflation expectations which have heightened and remain at elevated levels. Usd/Jpy retreated through 135.00 where 1 bn option expiries sat for the NY cut and in between NFIB’s business optimism index, scheduled speeches from Fed’s Jefferson and Williams plus the next round of debt ceiling discussions.

AUD/CHF/EUR/NZD

All making way for their US peer’s part-revival, with the Aussie also undermined between 0.6786-57 parameters  by an unexpected slump in Chinese imports, while the Franc relinquished 0.8900+ status, the Euro lost grip of the 1.10000 handle irrespective of hawkish ECB rhetoric via Kazmir and Kazaks and the Kiwi was hampered by a wider than forecast NZ Treasury budget deficit within a 0.6349-26 range.

CAD/GBP

The Loonie held up relatively well given another downturn in crude prices and Canada’s diplomatic spat with China, while Sterling retained most of its early May bullish momentum on return from the UK’s extended Coronation celebrations. Usd/Cad was capped ahead of 1.3400 and Cable largely stayed afloat of 1.2600, albeit with assistance from the Eur/Gbp cross finally breaching a Fib at 0.8712 on the way to probing 0.8700 and a test of 1.1500 in the reciprocal Gbp/Eur pairing.

SCANDI/EM

Hawkish Riskbank minutes kept the Sek cushioned from a deterioration in broad risk sentiment, but the Nok got little support from Norges Bank Governor Bache who noted substantial uncertainty about the outlook and added that the future policy rate path will depend on economic developments before describing currency intervention as costly and not very efficient. Conversely, the Huf derived a degree of comfort from NBH Deputy Governor Virag’s preference for a stable FX market to curb inflation.

09 May 2023 - 10:22- Fixed IncomeResearch Sheet- Source: Newsquawk