US FX WRAP: Yen and Aussie underperform while Buck sees slight gains

Analysis details (20:30)

The Dollar saw a slight bid on Wednesday with DXY trading either side of 105.50 with the only data being March Wholesale Sales which fell 1.3% after rising 2.0% in the prior month, while wholesale inventory revisions declined 0.4%, as expected. The Atlanta Fed GDPNow Model (Q2) was also updated to incorporate last week's jobs report, ISM non-manufacturing index, auto sales and wholesale trade data to lift the tracker to 4.2%% from 3.3%. There were remarks from Fed's Collins who gave a set of neutral remarks, noting policy is well positioned and there are risks to cutting too soon. Governor Cook meanwhile focused on Financial Stability. 

The Euro was relatively flat vs. the Dollar with EUR/USD trading each side of 1.0750; EUR/GBP was also flat. There were several ECB speakers who all largely sang from the same hymn sheet with a June cut seen as a certain. Wunsch does note there is a path for rate cuts this year and suggests there is room for at least two 25bp rate cuts this year (market currently prices in nearly 3 rate cuts). Holzmann noted that if the time comes in June, further steps will certainly follow, but he does not see a reason to lower rates too quickly. On data, German industrial output data fell 0.4% in March, a touch better than the -0.6% forecast but down from the prior, revised lower, 1.7% gain.  

The Yen saw further weakness and was the G10 laggard against the Buck with USD/JPY rising back above 155 to a peak of 155.67 on Wednesday. Note, BoJ Governor Ueda spoke overnight, largely reiterating recent commentary although he did add that the BoJ may need to respond via monetary policy if such an impact from Yen moves affects trend inflation. He also noted, however, that he does not see the Yen moves having a large impact on this so far, but there is a risk the impact could become more significant in the future. Ueda also noted that the central bank will not necessarily wait until inflation achieves their forecasts in 1.5-2 years to raise interest rates. 

The Swedish Krona was softer vs. the Euro and the Dollar once the dust settled from the Riksbank rate decision. The Riksbank cut rates by 25bps as was expected by the majority of survey respondents, while it also noted that if the outlook for inflation still holds, the policy rate is expected to be cut two more times during the second half of the year, in line with the forecast in March. SEK saw initial weakness to the decision with hawkish bets being unwound, but given further rate cuts are expected in H2 (i.e. not June), SEK weakness did pare from lows as it implies the Riksbank will pause for now but it ultimately was still marginally softer vs. both currencies on the session. 

Cyclical Currencies were generally flat against the Dollar but AUD was the laggard with the post-RBA weakness continuing while NZD, GBP and CAD saw little gains or losses with US equities rather flat. Pound traders await the BOE Rate decision, minutes and MPR due on Thursday; Newsquawk preview available here.

EMFX was mixed. BRL sold off ahead of the BCB rate decision after hours (primer here) where expectations are for either a 25 or 50bp cut. Meanwhile, retail sales data was above expectations while the April IGP-DI Inflation index was in line with expectations at 0.72%, accelerating from the prior -0.3%. CLP was flat vs. the Dollar with the hotter-than-expected Chile inflation data offsetting any commodity-induced weakness from softer copper prices. 

08 May 2024 - 20:30- Fixed IncomeData- Source: Newswires