FOREX: GBP's BoE Slide Only Outdone by JPY and BoJ Pressure
Dec-19 16:44
- GBP suffered into the close, slipping on the back of a dovish read from the BoE's December meeting. While rates were held unchanged - alongside expectations - markets were taken offguard by the 6-3 vote split among the committee, meaning the MPC doves were just two votes short of a majority, making for firmer pricing for the easing cycle across 2025. As a result, EUR/GBP bounced off a fresh cycle low as the relentless widening of the SFI - ER Z5 spread hit pause.
- USD/JPY extended the day's rally through the London close as the confluence of BoJ/Fed meetings gave the pair the best session of the year so far. The daily gains of near 300 pips are akin to the rally posted on April 26th, which was followed just the next day by official BoJ intervention to slow the decline of the JPY. That seems unlikely at this juncture given the move today has been triggered by fundamentals, rather than baseless speculation, with the Fed/BoJ confluence moving markets globally, and not just contained to Japan.
- A pullback in crude oil prices helped NOKSEK take another leg lower, building on the move seen after the Riksbank/Norges Bank rate decisions, making for a clearing of the November 1 low at 0.9672. Having traded over 1.0% lower Thursday, the cross is on track for the second largest one-day fall this year (topped only by the 1.4% fall on Aug 2). Trendline support drawn from the August 5 low is now firmly in view (0.9639 today), clearance of which exposes the Sep 26 low at 0.9572.
- Friday turns to the UK retail sales release for November, final UMich sentiment data for November as well as the core PCE release - among the last key datapoints of the year for the US. The first Fed speakers following the rate decision are due to appear, with Fed's Daly and Williams set to make appearances on Bloomberg TV and CNBC respectively.
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US: USD: Dollar Touches Week's Lows As Lutnick Apparently Out Of Tsy Sec Running
Nov-19 16:37
With Punchbowl reporting that Cantor Fitzgerald CEO Howard Lutnick is to be nominated as President-Elect Trump's Commerce Secretary, he is considered to be out of the running for the higher-profile and more influential position of Treasury Secretary.
- The US dollar index extended losses to session lows (and lowest levels since last Wednesday) on the back of the news, continuing a correlation we pointed out last week between Lutnick's Treasury nomination odds and the USD (see chart).
- Last week the dollar began rebounding strongly in tandem with rising betting market implied probabilities that Lutnick would get the nomination. He is/was seen as one of if not the most pro-tariff candidates for the position, and tariffs are broadly seen as dollar-positive/foreign currency negative.
- The USD's retreat also came alongside an easing of geopolitical risk premia on headlines that the IAEA announced that Iran had agreed to stop producing bomb-grade uranium.
- Lutnick had already receded from 60+% betting market probability to be nominated as Treasury Secretary as recently as Monday, to 10% just before today's news. Kevin Warsh - broadly seen as a fiscal conservative - is now the favorite at 55% (Polymarket), with Scott Bessent at 21%, down from 70+% last week before Lutnick's name started gaining traction.
- The Commerce Secretary also plays a hand in implementing the tariff regime, but is considered to be more of a domestically-focused position.
OPTIONS: Larger FX Option Pipeline
Nov-19 16:37
- EUR/USD: Nov21 $1.0535-50(E1.4bln), $1.0600-10(E2.1bln), $1.0650(E1.3bln); Nov22 $1.0500(E1.1bln), $1.0600-15(E1.4bln)
- AUD/USD: Nov21 $0.6450(A$2.0bln)
- NZD/USD: Nov25 $0.6000(N$1.7bln)
- USD/CAD: Nov21 C$1.4025-40($1.2bln), C$1.4175($1.0bln)
