EUROPEAN FX UPDATE: Yen, Franc and Euro rally on mix of risk and rates

Analysis details (10:36)

JPY/CHF/EUR/DXY  

The pecking order chopped and changed, but the rationale stayed the same as sentiment soured after a couple of rebounds in risk appetite either side of the weekend and ECB President Lagarde backed up her relatively hawkish blog remarks with an element of extra hike premium to signal the chance of slightly above par rates this year. In response, Usd/Jpy has recoiled again between wide 128.09-127.20 parameters, while Usd/Chf is at the base of a 0.9670-10 range even though Eur/Chf is back on the 1.0300 handle alongside Eur/Usd breaching 1.0700 and only fading a few pips shy of a late April high (1.0739 from the 26th to be precise). Given renewed strength in three of the Dollar’s index components, and irrespective of the Pound’s abrupt reversal on the back of far from flash UK PMIs, fresh cycle lows sub-102.000 were hit before some consolidation within a 102.310-101.730 band awaiting Fed’s Powell, the US preliminary PMIs, semi-annual ISM forecasts and the first of this week’s T-note auctions (Usd 47 bn 2 year supply).

GBP/NZD/AUD/CAD

As noted above, Sterling suffered a sharp decline in wake of the dire PMIs and a particularly poor services print that dragged the composite reading down with it. Cable was on the verge of retesting 1.2600, albeit with indirect assistance from the aforementioned Yen, Franc and Euro-related Buck pressure, but subsequently lost 1.2500+ status in tandem with the Eur/Gbp cross rotating around 100 pips from sub-0.8500 trough to near 0.8600 peak. Elsewhere, a fall in NZ Q1 q/q retail sales and slowdowns in Aussie PMIs are adding to broad risk-off dynamics down under where the Kiwi may also be treading cautiously pre-RBNZ (full preview of the policy meeting available via the Headline Feed at 9.55BST and under the Research Suite section of the website). Indeed, Nzd/Usd is below 0.6450 and Aud/Usd is losing momentum beneath 0.7100, as Aud/Nzd hovers just shy of the 1.1000 mark, while Usd/Cad is closer to 1.2800 than 1.27500 after the Loonie ran into resistance around 1.2765 for a second time in two sessions.

SCANDI/EM   

The resumption of risk aversion undermined the Sek and Nok especially as oil prices pulled back too, but cheaper crude provided the Try with no protection from investor angst following Turkish President Erdogan’s announcement about new military operations along the country’s southern borders to create 30km deep safe zones, and his refusal to recognise Greece’s leader or meet at a Summit planned for later this year. Conversely, some traction for the Huf as NBH Deputy Governor Virag said rates will continue to rise gradually and 50 bp clips are an option to curb inflation and get it back to the 3% target.

24 May 2022 - 10:36- Fixed IncomeData- Source: Newsquawk