Fragile risk returns
Wednesday 9 October 2022
Yet another rollercoaster ride for the Pound but generally weaker tones prevailing again amid the political and economic uncertainty. UK inflation data out this morning showed an upturn and put further pressure on the Pound wiith the UK unlikely to cope with the associated higher interest rate impact on a failing economy.
BOE has confirmed gilt sales as planned, up to 20year to begin on November 1, but these sales will be focused on the short and medium term periods suggesting they continue to recognize some concerns especially around LDI risk. Today UK PM Truss will face tough PMQs at the same time the 1922 Committee of the Conservative Party meet to discuss the current sorry scenario. BoE's Cunliffe testifies at 15:00 BST and Catherine Mann speaks at 16:00 BST.
Elsewhere equities softer again amid wobbly risk sentiment returning. Oil is heading lower again and gold off its latest rally highs. Some JPY demand returning on the wobbly risk and expectation that USDJPY will see some interevention as it nears the key 150 level amid better USD tones overall.
GBPUSD: A cap in place now at 1.1350 amid the UK political and economic uncertainty to test 1.1250 as I type. I remain a rally seller. I can't see any good news to be had from the current fallout now the mini-mudget u-turn rally is over. Cross flows still having a big impact too. EURGBP: Finding support at 0.8680 and now testing 0.8730 amid the general GBP supply. I expect more two-way business to continue with the Eurozone facing issues of its own but the UK definitely still the main focus. GBPJPY: 168.50 support now broken after capping at 169.50 amid the GBP supply and wobbly risk tones. USDJPY still vulnerable to BOJ intervention rumour/action but should still find dip demand
EURUSD: Support now 0.9800-20 after the cap around 0.9850 and some pips duly banked. as we continue to range. USDJPY: Still marching ever-higher to 149.4 brushing off yesterday's sharp drop to 148.20. Intervention threat still real as we approach 150 and I repeat what I said yesterday." Dangerous to be long unless you can withstand such short term attacks and focus on longer term gains."EURJPY: Capping at 147.00 again but holding 146.50 for the moment. JPY the driver still overall.USDCHF: Capped at 1.000 this morning but support nearby at 0.9980 area again as EURCHF remains underpinned for the moment amid some general EUR demand and with SNB never far away albeit off 0.9825 highs. EURCHF: Holding 0.9800-10 now with seemingly some SNB smoothing still and EUR dip demand but sellers still poised above 0.9820-30
AUDUSD: Support still around 0.6280 but sellers prevailing again around 0.6325-30 amid the general USD demand.NZDUSD holding 0.5670 in latest retreat but sellers remain poised at 0.5700-10. USDCAD: A good hold of 1.3720 this time amid softer oil tones and general USD demand but capping at 1.3800. Variable CADJPY flows still impacting too.
Interbank rates: 08.13 BST