WEEKLY FX WRAP: macro releases still influential, but Central Bank rhetoric pivotal

Analysis details (17:11)

USD/EUR

Fed Chair Powell headlined Friday’s agenda and his remarks garnered even more attention than normal given somewhat mixed messages from other officials ahead of the impending blackout period before December’s FOMC policy meeting. In sum, market expectations for easing much earlier than the Fed is signalling seemed to be vindicated when hawk Waller said he is increasingly confident that policy is well positioned to slow the economy and get inflation back to 2%, adding there are good economic arguments that if inflation continues to fall for several more months, then you could lower the policy rate and if inflation consistently declines there is no reason to insist that rates remain really high. However, Daly countered by saying it’s too soon to call time on hikes and premature to declare victory against inflation, adding that the Fed is currently on the way to temporarily reaching 2%, but is not interested in temporary price stability, so she does not want to take any meeting off the table because we are constantly collecting data and there is still a lot to come before December’s FOMC. Hence, the heightened focus on Powell and in the first of his two scheduled appearances he was relatively neutral as highlighted by his opening lines - FOMC moving forward carefully as risks of both under- and over-tightening are becoming more balanced, it is premature to conclude with confidence that the Fed has achieved a sufficiently restrictive stance, or speculate on when policy might ease - see 15.58GMT post on the Headline Feed for more. Meanwhile, data continued to show disinflation via PCE price metrics, but overall strength in the US economy with an upgrade to Q3 GDP and a booming Chicago PMI, albeit boosted by Boeing orders and not reflected in the manufacturing ISM. Indeed, the latter missed in headline terms and the employment component contracted at a faster pace to offset a marked improvement in new orders and prices paid rebounding to just shy of 50.0. This knocked the Dollar and DXY back down after the latter rebounded to a new w-t-d peak, mainly on the back of more pronounced Euro depreciation. On that note, Eur/Usd had already shied away from 1.1000+ highs amidst considerably cooler than forecast preliminary Eurozone inflation data, but slumped to a fresh low circa 1.0830 following comments from ECB’s Villeroy. In short, he stated that disinflation is even faster than anticipated, data supports the Bank’s view of a return to 2% inflation and absent any shocks rate hikes are over. Back to the Buck, and looking at the index specifically, it extended to 103.72 from Wednesday’s 102.46 trough and could have clawed back more losses without Yen outperformance on yield dynamics and Loonie strength post-Canada’s employment report.

AUD/NZD/CAD

The Aussie got an overnight boost courtesy of China’s Caixin PMI returning to expansion, but also renewed risk appetite to overcome sub-consensus monthly CPI prints and a downward revision to final retail sales. Accordingly, Aud/Usd consolidated above 0.6600 and towards the top of a 0.6676-0.6568 range, but trailed behind Nzd/Usd between 0.6208-0.6062 extremes as the Kiwi outperformed following a hawkish RBNZ hold with a tweak to guidance, mildly higher OCR trajectory and firmer CPI projections. Thus, the Aud/Nzd cross remained depressed having reversed from 1.0860 to the brink of 1.0700. Elsewhere, the Loonie ended the week with a strong Canadian LFS to remove any residual disappointment with a shock Q3 Q/Q annualised GDP contraction and deflect from ongoing reverberations in the crude complex post-OPEC+ additional output cuts that were deemed bullish in knee-jerk reaction. As such, Usd/Cad probed 1.3500 compared to 1.3661 at the other end of the weekly scale regardless of the fact that the BoC is widely seen extending its on hold sequence to three in a row next week, and RBC looks for a dovish accompanying statement.

JPY/CHF     

Another swoon in yields ensured that the Yen and Franc netted gains against the Greenback, but Japanese data and wage developments also weighed on Usd/Jpy even though BoJ members maintained that it is too soon to shift from ultra-accommodation. Similarly, Swiss macro news was mostly positive ahead of key CPI next week that will include the increased rental factor and go a long way to determining what the SNB will do at its last quarterly review of 2023. Usd/Jpy duly recoiled to 147.00 and Usd/chf to 0.8700 within 149.67-146.68 and 0.8828-0.8686 respective bounds.

GBP

The Pound performed well with some impetus from a less negative CBI distributive trades survey, more optimistic Lloyd business barometer, firmer than expected Nationwide house prices and an upward adjustment to the final UK manufacturing PMI. However, the fillip for Sterling came from the latest batch of BoE members banging the higher for longer and restrictive for prolonged period rate drum, including Governor Bailey, MPC hike dissenter Haskel and newbie Greene. Cable peaked around 1.2733 vs a trough just beneath 1.2600, while Eur/Gbp tumbled from 0.8688 to 0.8574.

SCANDI/EM

Eur weakness played a major part in the Sek and Nok resurgence, but there was independent incentive from better Swedish and Norwegian manufacturing PMIs to supplement their technical correction, while Gold’s rush to top Usd 2060/oz helped the Zar shine and the Cny/Cnh got more help from the PBoC’s heavy-handed midpoint fixes, Chinese stimulus measures/pledges and the Caixin manufacturing PMI to compensate for official NBS misses. As a result, the Yuans prodded and stayed close to significant chart resistance against the Usd in the guise of 200 DMAs. Conversely, the Try could not glean traction from positive CBRT vibes or Amundi switching out of its Lira shorts.

01 Dec 2023 - 17:11- Fixed IncomeData- Source: Newsquawk