EUROPEAN FX UPDATE: USD on the backfoot once again, GBP contemplates hot CPI

Analysis details (08:55)

USD

USD is once again on the backfoot as its major counterparts (ex-JPY) eke gains out against the greenback. As context though, the DXY is some way off yesterday’s PPI-inspired trough of 105.30 with the index just about managing to hold onto 106 status with a current session low of 106.03. From a fundamental perspective, the USD garnered some support yesterday from the reporting around the missile incident near the Polish border, however, as some of the tensions around the matter began to cool with the missile seemingly not launched from Russia territory, the greenback is once again on the backfoot. Today’s data highlight for the US comes via the October retail sales report which is expected to see a headline expansion of 1.0% (vs. 0.0% in September) with the control group seen at 0.3% vs. prev. 0.4%. Ahead of the release, CS writes “High-frequency card spending data suggest consumer spending remained solid in October”. Fed speak today includes Williams, Barr (who spoke yesterday) and Waller, however, recent commentary from officials has done little to support the USD as markets weigh recent CPI and PPI metrics.

GBP

GBP saw a brief spike high in the wake of firmer-than-expected UK inflation metrics with the CPI Y/Y rate advancing to 11.1% from 10.1%, whilst the core metric unexpectedly held steady at 6.5%. Traditionally, a hot CPI release would be beneficial for a currency given the rate-implications, however, with such a bleak UK economic outlook and concerns over rising mortgage payments, this no longer holds true for the UK. Pre-release a 50bps BoE hike in Dec was priced at 65% with 75bps seen at 35%, post-CPI, 50bps and 75bps are now 50-50. Further clues on the UK rate path could be presented by MPC members Bailey, Broadbent, Mann and Dhingra’s appearance before the TSC at 14:15GMT. As it stands GBP is broadly flat against the USD within a 1.1832-1.1903 range vs. a peak of 1.2029 yesterday.

EUR

EUR has once again been a beneficiary of the softer USD with the pair breaching 1.04 in early European trade. From a fundamental perspective, once again updates for the region have been on the light side. Traders will be cognizant of any further increases in tensions between Russia and the West regarding the missile incident near the Polish border. However, this is yet to have a sustained sway on assets during today’s session. Note, NATO is to meet on the matter at 09:00GMT with Sec Gen Stoltenberg due to speak at 11:30GMT. From a monetary policy perspective, ECB President Lagarde is due to speak at 15:00GMT with Panetta also due at the same time. As it stands, markets currently assign a 58% chance of a 50bps hike in December with 75bps seen at 42%. EUR/USD currently lingers around the 1.04 mark and still some way off yesterday’s 1.0481 best. Technicians eye a potential close above the 200DMA at 1.0424.

JPY

JPY is the G10 FX laggard as USD/JPY attempts to reclaim some lost ground after printing a base of 137.67 yesterday. As it stands, the pair ventured to a high of 140.29 during the APAC session, however, has since slipped back to around 139.50 as the USD lost ground. In terms of the path ahead for USD/JPY, analysts at ING note, “we suspect the next five big figures in USD/JPY come to the upside. We see this because the US 10-year Treasury yield typically only trades 50-75bp below the Fed funds rate towards the end of the tightening cycle. And given that our team is looking for the policy rate to still be taken 100bp higher, we think US 10-year Treasury yields will probably return to the 4.25/4.35% area before the end of the year.”.

16 Nov 2022 - 08:55- Fixed IncomeData- Source: Newsquawk