EUROPEAN FX WRAP: Dollar generally softer in the run up to FOMC

Analysis details (16:00)

USD

The Buck may benefit from a bout of short covering as clock ticks down to the Fed, but it traded on the back foot for the most part due to a combination of defensive positioning and outperformance in various rival currencies. Indeed, the DXY dipped a bit further below 103.00 at one stage having slipped into a lower and narrower 103.260-102.970 range compared to 103.510-102.990 on Tuesday with pressure stemming from Sterling early on and then the Euro as an offset to weakness or underperformance in the Franc and Yen. In sum, the markets are much more convinced that the threat of a real financial crisis has abated enough for the FOMC to deliver another 25 bp hike, but the uncertainty surrounds guidance and how high rates are likely to rise before reaching a peak. Note, an in-depth preview of the looming event can be found in the Research Suite section of the website under Ad-Hoc Reports and will also be re-posted on the Headline Feed nearer the time.

NZD/EUR/AUD/GBP

All firmer against the Greenback, but off best levels as the Kiwi topped out around 0.6224, the Euro failed to breach 1.0800 when EGB/UST spreads were really compressed, the Aussie faded just over 0.6700 and the Pound ran aground only a few pips shy of 1.2300. To recap, Nzd/Usd was supported by Aud/Nzd tailwinds and an improvement in NZ Q1 consumer sentiment, while Eur/Usd was underpinned by more hawkish-leaning ECB commentary, Aud/Usd gleaned traction following talks between Australian and Chinese officials that are said to have further enhanced their mutual understanding, and Cable derived impetus from strong UK inflation data that crystalised expectations for a 25 bp hike by the BoE tomorrow. On the flip-side, Sterling eventually lost out to the Euro, mainly on technical grounds after the cross held close to the 100 DMA (0.8775) before rebounding through 0.8800 and hardly reacting to a comfortable Commons vote in favour of the Stormont Brake.

CAD/CHF/JPY  

The Loonie remained tethered to 1.3700 pre-BoC minutes and flanked by DMAs vs its US counterpart, while the Franc and Yen languished between 0.9207-47 and 132.26-133.00 respective parameters against their US peer. Nevertheless, Usd/Chf was capped in advance of a widely forecast half point hike from the SNB tomorrow and Usd/Jpy took bleak elements of the latest overall economic view from the Japanese Government largely in stride.

SCANDI/EM

In similar vein, the Nok overcame an increase in the Norwegian LFS unemployment rate to outpace the Sek amidst more corrective price action and hedging for Thursday’s Norges Bank policy meeting, while the Zar extended recovery gains alongside Gold and in wake of SA inflation metrics topping consensus. Elsewhere, the Mxn was probably more encouraged by relative stability in WTI rather than remarks from Banxico’s Deputy Governor Espinosa who said that the inflation rate has brought some good news, but we are in a complex and uncertain environment, adding that the Peso is showing resilience, though the Fed is an important variable in terms of the exchange rate.

22 Mar 2023 - 16:00- Fixed IncomeData- Source: Newsquawk