EUROPEAN FX UPDATE: USD gives back some of yesterday's post-FOMC gains, JPY hit post-BoJ

USD: DXY -0.4%; 107.86

• USD is currently giving back some of yesterday's FOMC-induced gains which saw DXY take out the 22nd Nov 2024 high (108.09), topping out at 108.25. DXY has since returned to a 107 handle, however, ING is of the view that the "hawkish re-tuning of the Fed’s communication will lay the foundation for sustained dollar strengthening into the new year". If upside resumes, the next upside levels include the peak from 11th Nov 2022 (108.44), with clean air then seen until near 111.00. As the dust settles on the Fed decision, around 2bps of loosening is priced for the Fed's January decision with the next 25bps cut not priced until July, whilst around 36bps of cuts is priced by end-2025.

EUR: EUR/USD +0.6%; 1.0411

• EUR macro drivers are on the light side and as such impetus for EUR/USD is being mostly driven by the USD leg of the equation. EUR/USD is back on a 1.04 handle after slumping to a 1.0343 low in the aftermath of the FOMC, with the next support level seen at the 22nd Nov 2024 (and YTD) low (1.0333) before looking at levels from late 2022.


• EUR/USD opex: 1.0340-50 (1.4BLN), 1.0360-65 (1.9BLN), 1.0390-1.0400 (3.3BLN), 1.0420-30 (790M), 1.0450 (1BLN), 1.0460-65 (1BLN), 1.0500 (1.1BLN)

JPY: USD/JPY +1.4%; 157.04

• JPY is by far the underperformer across the G10 FX complex. USD/JPY was already driven higher following the hawkish Fed announcement, reaching a 154.86 peak. This extended to 155.44 following the BoJ's decision to keep rates unchanged. Thereafter at Governor Ueda's press conference, despite some initial firming of the JPY (as Ueda flagged the need to look at financial and FX markets), JPY saw a bout of sharp depreciation vs. the USD. This was triggered by comments that the BoJ will need "considerable time" to see the full picture on wage hikes and Trump policies, adding that the "large picture on wage trends will become clearer in March and April". USD/JPY has been as high as 157.13 (highest since 22nd July - 157.61 was the high that day). Around a 50% chance of a hike is seen by January vs. around 65% pre-release with the first hike not fully priced until May'25.


• USD/JPY opex: 155.00 (1.7BLN), 156.00 (498M), 156.45 (636M), 158.00 (1.1BLN)

GBP: GBP/USD +0.7%; 1.2660

• GBP near the top of the G10 leaderboard in the run-up to today's BoE policy announcement which is expected to see the MPC hold rates at 4.75% via an 8-1 vote split on account of stubborn services inflation, elevated wage growth and a potential upcoming boost to growth from recent fiscal measures. The policy statement will likely reiterate that “a gradual approach to removing policy restraint remains appropriate”. Cable is back on a 1.26 handle and has been able to unwind a lot of the post-FOMC selling which sent it to a MTD low @ 1.2564.

Antipodeans: AUD/USD +0.3%; 0.6237. NZD/USD +0.5%; 0.5650

• Both firmer vs. the USD in today's session but very much down on the week after being dealt a hammer blow by yesterday's FOMC policy decision. AUD/USD made a fresh YTD low overnight @ 0.6200 to hit its lowest level since October 2022. AUD/USD has since recovered a touch but is a far cry from the 0.6348 level seen at the start of the week. NZD/USD also hit a fresh YTD low overnight @ 0.5609 to trade at its lowest level since October 2022. Softness in NZD was also exacerbated by soft GDP metrics overnight which showed its economy had shrunk by 1% in Q3 Q/Q (vs exp. -0.2%, prev. -0.2%).

NOK/SEK: - EUR/SEK -0.2%; 11.4924. EUR/NOK -0.2%; 11.7706

• Riksbank cut rates by 25bps as expected. EUR/SEK fell from 11.50 to an 11.4872 session low. SEK appreciation was in response to outside bets for 50bps unwinding (though, recent global hawkish action had already done this), phrasing around a "more tentative approach" to policy easing going forward and the elevated CPIF forecast for 2025.


• Norges Bank opted to keep rates unchanged at 4.5% as expected. The statement now guides us to the first cut "most likely" occurring in March 2025, while the base case among desks, the explicit guide to March is perhaps somewhat dovish on the margin. However, any dovishness from this has been offset by a modest adjustment to the repo forecast, which sees the Q4-2025 projection at 3.80% (vs. Sep. MPR 3.73%). Modest two-way reaction was seen in EUR/NOK. Initially, the NOK came under pressure on the explicit nod to March before paring given MPR adjustments; as the dust settles, EUR/NOK is back towards pre-release levels of 11.7680.

19 Dec 2024 - 10:10- ForexEU Research- Source: Newsquawk