FX Weekly Wrap: Fed continues to tighten monetary reins, while Italy loosens fiscal purse strings

DXY

The index is on course to end the week, month and Q3 some 100 ticks higher than where it started on Monday, and almost 150 ticks above the lows as several positive factors align, including some buy signals for the final trading day of September plus pronounced weakness in certain counterpart currencies. From a more fundamental perspective, several US data points were also supportive and the FOMC delivered its latest widely expected 25 bp rate hike, while underscoring guidance for 5 more ¼ point tightening moves through to 2020, including a further one in 2018 (December). The accompanying policy statement was tweaked to remove ‘accommodative’, largely acknowledging a further move towards normal/neutral, and in the post-meeting press conference Fed chair Powell described the economy as bright. DXY currently circa 95.300.

EUR

The biggest G10 loser, even though ECB rhetoric was relatively hawkish and data arguably backed up President Draghi’s unexpected ‘vigorous’ assessment of underlying inflation. However, events in Rome overshadowed all that and the single currency is now just off lows vs the Usd around 1.1570 from roughly 1.1750 early on Monday and peaks of 1.1815 at one stage during the week. Technically, nearest support is seen around 1.1550, but a stronger downside chart level resides at 1.1509.

GBP

Another major underperformer or underachiever, with Cable testing bids/support ahead of 1.3000 having been as high as 1.3215 amidst broadly positive Brexit vibes compared to the far from cordial atmosphere at last week’s Salzburg summit where UK PM May and Brexit Minister Raab were reportedly given a frosty reception. Notwithstanding major misgivings over the Chequers White Paper at EU level and within the UK Government, chief negotiator Barnier and other high profile officials in Brussels repeated pledges to keep working towards a mutually satisfactory deal. Nevertheless, dovish BoE commentary, on balance, from the likes of Ramsden and softer than forecast GDP data ultimately undermined the Pound.

CAD/AUD/NZD/CHF

The Loonie looks capable of completing a full circle between 1.3080-1.2905 trading parameters against its US peer even though NAFTA negotiations seem to be far from any conclusion amidst reports that US President Trump declined to meet Canadian PM Trudeau face to face and the former also suggesting no rapport at all with Canada’s trade reps. Data on Friday in the form of July GDP did boost the Cad, while lofty crude prices were another positive and BoC’s Poloz maintained gradual tightening with data dependency too. The antipodean Dollars did not fare so well after latest US-China import tariffs were imposed and China refused invitations to talk, while the RBNZ kept options open for a cut or hike even though its latest assessment of the economy and core inflation was upbeat. Aud/Usd is holding just above 0.7200 and the Kiwi is hovering above 0.6600, but vs 0.7300+ and almost 0.6700 at best respectively. The Franc has been week for the most part without an obvious independent or specific catalyst, so the rumour mill turned towards the SNB on the grounds that it could have intervened pre-emptively given the fall-out from Italy’s decision to push its 2019 budget deficit beyond 2%.

JPY        

Another net loser vs the Dollar and retesting week to date highs around 113.60 against 112.25 at the other extreme, with US/Japanese yield and Fed/BoJ policy divergence driving some of the moves as Governor Kuroda underlined the need for powerful easing to continue on more than one occasion.

NOK/SEK

Conversely, relative Norges Bank and Riskbank vs ECB and upbeat Scandi data helped the Nok and Sek outpace the Eur and keep tabs on the Usd, with the Eur/Nok cross down through several chart supports on its way to just shy of 9.4500 and Eur/Sek sub-10.2900 at one stage.

EM

A net positive week for most regional currencies, as past, present and new and intervention measures reasserted influence, Brent’s rally fuelled the likes of the Rub and reports that Turkey may yet relent and release US Pastor Brunson saw the Try revisit 6.0000 vs the Usd. Meanwhile, more pressure on the Ars was alleviated with the aid of the IMF and headlines suggesting that the Central Bank could jack up rates to 65% from 60%.

(RANsquawk)