EUROPEAN FX UPDATE: Yuan pummelled by PMIs and Dollar prospers

Analysis details (10:13)

DXY/CNY/CNH

After a partial turnaround on Tuesday when the Greenback faded fairly sharply amidst various forms of intervention and some technical impediments, renewed weakness in the Yuan gave the Buck a firm boost alongside hawkish comments from Fed’s Mester arguing against the case for a pause or skip at the June FOMC. Usd/Cny and Usd/Cnh spiked to 7.1120  and 7.1300+ in response to official NBS Chinese PMIs falling short of consensus and the manufacturing headline particularly worrying as it contracted at a faster pace. This in turn prompted more contagion and spillover to commodities on global growth/demand dynamics, while the Euro was also undermined by softer than expected inflation metrics from Germany and France, former via state CPIs and import prices. Consequently, the Dollar index rebounded from 104.000 to 104.630 at best and a new w-t-d high awaiting more Fed speakers, the Chicago PMI, JOLTS job openings and the latest Beige Book.

NZD/EUR/CHF/AUD/GBP

The Kiwi tested support around 0.6000 vs its US peer as Aud/Nzd remained elevated around 1.0800 in wake of stronger than forecast Aussie April CPI and construction work done in Q1 that underpinned expectations for another 25 bp hike from the RBA next month given remarks from Governor Lowe reiterating data dependence in terms of future policy decisions. However, Aud/Usd lost more momentum under 0.6500 towards key Fib support at 0.6464 in sympathy with the Yuan. Elsewhere, the Euro hit a fresh multi-month low sub-1.0665 and also nearer to a Fib retracement level, at 1.0653, following the aforementioned EZ inflation reports, and with ECB’s Visco sounding less hawkish than Muller earlier in the session (see 9.35BST and 7.50BST posts on the Headline Feed respectively for more). Note, Italian CPI bucked trend, but only had a limited impact. Similarly, the Franc was rattled Swiss retail sales declining at a quicker rate and Sterling took heed of a dip in Lloyds UK business barometer, as Usd/Chf approached 0.9120 and Cable reversed towards 1.2350 in advance of remarks from BoE’s Mann and SNB’s Jordan.

JPY/CAD

Another retreat in US Treasury yields allied to ongoing uncertainty over the passage of the debt ceiling deal and perhaps a bit of month end positioning kept the Yen afloat of 140.00, albeit narrowly, while the Loonie contained losses to circa 1.3649 regardless of another downturn in WTI ahead of Canadian monthly and quarterly GDP readings.

SCANDI/EM

The Nok managed to draw some comfort from a slightly lower Norges Bank foreign currency daily remit for June against the backdrop of Brent’s recoil from Usd 73.95/brl through Usd 73.00, but the Sek was hampered by reports that the Swedish Ministry of Finance called around to investors in order to get their view on the real estate market and the Try gleaned no real traction from fractionally firmer than anticipated Turkish GDP.

31 May 2023 - 10:13- Fixed IncomeData- Source: Newsquawk