EUROPEAN FX WRAP: Dollar contained on Thanksgiving while Yen tests 138.00

DXY

Very little holiday cheer for the Dollar following FOMC minutes on Wednesday showing that a substantial majority of participants judged a slowing in the pace of interest rate hikes would likely soon be appropriate, as this would better allow the Fed to assess progress toward its goals 'given the uncertain lags' around monetary policy. However, there were several hawkish elements as well, including many members noting 'significant uncertainty' about the ultimate level of the Funds rate needed to tame inflation with 'various participants' suggesting it was higher than previously expected, while others said it could be advantageous to wait until the stance of policy was more clearly in restrictive territory before reverting to smaller tightening increments. Nevertheless, the index only just held above its recent 105.300 low within a 105.620-106.070 range on US Thanksgiving Day. 

SEK

The Swedish Crown tested Fib resistance against the Euro after the Riksbank hiked rates by 75bp, as most expected, but failed to make a convincing break even though the repo path was raised to imply another increase in February 2023 before reaching a peak of roughly 2.75% and holding until the end of the forecast horizon. Eur/Sek dipped through 10.8500 at one stage then rebounded towards 10.9100 given market pricing had tilted towards another 100bp hike and the fact that guidance suggests one more and done before pausing to assess under a new Governor.

JPY

In stark contrast to the Greenback, the Yen returned from Japan’s midweek break refreshed and raring to go, with Usd/Jpy retreating further towards 138.00 amidst even softer global bond yields, and irrespective of downbeat PMIs, though the Government maintained its overall economic outlook for November.

GBP/EUR/NZD/AUD/CAD

All up and largely at the expense of their US counterpart yet again, as the Pound probed 1.2150, the Euro got close to 1.0450, the Kiwi tested 0.6290, the Aussie reached 0.6777 and Loonie straddled 1.3350 against the backdrop of relative stability in crude prices. Cable was already bid before BoE’s Ramsden argued that no matter how challenging the short-term consequences might be for the UK economy, the MPC must take the necessary steps in terms of monetary policy to return inflation to achieve the 2% target sustainably in the medium term (see 9.45GMT post on the Headline Feed for more), while Mann said her expectations for inflation are on the upper end of BoE projections while Pill admitted the MPC was perhaps a little late in deciding to move to Gilt sales. The Euro saw a mixed German Ifo survey revealing better than consensus business climate and expectations vs slightly worse than anticipated current conditions. Note, 1.1bln of option interest expired at 1.0400, a level we saw Eur/Usd hover above throughout the afternoon. The ECB Minutes saw a very large majority supported a 75bp hike in October but a few preferred a smaller 50bp move while an ECB Insider piece suggested they are almost sure the December hike will be a slower, 50bp move. De Guindos spoke on how inflation may of peaked, or being very close to peaking, Knot said it is unclear for him if the peak rate will be 3% in the current cycle. Schnabel said that incoming data thus far suggests that slowing down the pace of rate adjustments remains limited and they will need to hike further, into restrictive territory. Looking ahead the Kiwi gets NZ retail sales for Q3 to digest hot on the heels of yesterday’s hawkish RBNZ hike.

CHF/NOK

Consolidation for the Franc and Krona after recent exertions and with scant independent or specific impetus bar dips in Norway’s LFS rates. As such, Usd/Chf meandered from 0.9388 to 0.9446 and Eur/Nok roamed between 10.3116-10.3704 in holiday-thinned trade.

EM       

Some protection from the latest deterioration in Chinese Covid conditions for the Cny and Cnh as the PBoC delivered more measures to prop up the property sector and reports suggested that the Cabinet will make targeted RRR tweaks at the appropriate time, but the Try was defensive pre-CBRT although little reaction was seen in wake of the decision and post-decline in Turkish capacity utilisation. The CBRT did later announce measures on reserves where a 3% commission will be applied to banks whose TRY deposit ratio is between 50-60%, but an 8% charge will be applied to those that do not meet the 50% deposit ratio. The Zar was cautious ahead of the SARB but was marginally weaker on the day and back above 17.00 after the central bank followed through with a 75bp as expected but with two members voting for 50bp instead. Meanwhile, the HKMA defended its Hkd peg in response to claims that it no longer makes sense and the ICICI contended that the RBI is likely to keep the Inr contained between 81.50-82.50 vs the Usd. Mxn was flat vs the Dollar with little reaction to the minutes which saw Esquivel say he considers it necessary to start reducing the pace of the hiking cycle, while all agreed core inflation continued trending upwards. BRL saw strength despite a slightly cooler-than-expected Brazillian half-month inflation report while consumer confidence also disappointed

24 Nov 2022 - 17:00- Fixed IncomeData- Source: Newsquawk