EUROPEAN FX UPDATE: turnaround Tuesday for risk and rates in the offing

Analysis details (10:06)

DXY/JPY/EUR

In stark contrast to this time yesterday, bank stocks firmed up and the overall market mood was more positive following further steps to back-stop deposits in the US and support FRB, while the Swiss Banking Association contends that credibility has not been destroyed by the Credit Suisse crisis, though clearly the situation is not good. Hence, Treasury and other global bond yields rebounded further from Monday’s extreme lows to the relative benefit of the Dollar and index that also gleaned encouragement or momentum from holding above 103.000 after a dip through its 103.270 prior session low to 103.240. However, the Greenback faded after topping 103.500 marginally and faces its watershed moment on Wednesday when the 2-day FOMC policy meeting ends with either another 25 bp hike or pause and updated dot plots plus guidance from Fed Chair Powell in the press conference. In terms of current pricing, a marked shift towards tightening from roughly even to circa 80% vs 19% for unchanged, and this propelled Usd/Jpy back above 132.00 from very close to 131.00 overnight, albeit in thin Japanese holiday trade due to the Vernal Equinox. Conversely, Eur/Usd was propped on the 1.0700 handle amidst mostly hawkish ECB rhetoric, including from President Lagarde who said without financial sector tensions the Bank would have flagged the need for more rate increases. Note, Germany’s ZEW survey metrics were weaker than consensus or previous, but hardly impacted.

NZD/AUD   

The Kiwi failed to derive much impetus from a significantly narrower NZ trade deficit as it waned from 0.6250 against the backdrop of strength in the Aud/Nzd irrespective of RBA minutes underpinning expectations that a pause may be forthcoming in April. Nevertheless, the Aussie failed to hold above 0.6700 and the 21 DMA vs its US rival ahead of the Fed.

CHF/CAD/GBP  

Some mild relief for the Franc as a smaller Swiss trade surplus was offset by a pick-up in watch exports and the KoF upgraded its 2023 and 2024 inflation forecasts. Usd/Chf retreated from 0.9316 to sub-0.9275, while the Loonie kept afloat of 1.3700, just in advance of Canadian CPI and Retail Sales, but Sterling sagged following its outperformance yesterday and inability to reach 1.2300. The Pound may have been wary about UK inflation data tomorrow and lost more ground against the Euro on the eve of the Windsor Framework vote that the DUP already rejected.

21 Mar 2023 - 10:06- Fixed IncomeData- Source: Newsquawk