FOREX: USD Index Consolidating Weekly Advance, AUD Volatility Remains High
Mar-04 10:35
- Global markets continue to digest implications from the Middle East conflict as hostilities go on. With an emerging frontrunner for the next Supreme Leader, chances are a collapse of the Mullah regime is not imminent, deepening the prospects for a prolonged crisis. Given the US's relative isolation to energy market developments and safe haven flows emanating from the broader hit to risk sentiment, the Ice Dollar Index is consolidating a 1.4% advance this week.
- However, it is worth noting the index remains well off yesterday’s 99.68 peak, with most recent NYT headlines on Iran operatives offering to discuss ceasefire terms improving risk sentiment somewhat and weighing moderately on the greenback.
- AUD volatility has remained a key feature of currency markets this week, with AUDUSD posting an 88pip range on Wednesday. Overall, spot remains towards the middle of the impressive 0.7125-0.6950 range posted yesterday. To the downside, the 50-day EMA at 0.6925 represents the key support level, keeping the bullish trend condition intact for now.
- This morning's headlines from SNB's Vice Martin confirm a step up in the forcefulness of the central bank’s language on FX after Monday's emailed statement on a higher readiness to intervene. Alongside positioning dynamics and the firmer dollar, USDCHF had an impressive short squeeze across Monday and Tuesday, rising as much as 2.7% from the lows. Moves have moderated since and for EURCHF, we have slipped back below 0.9100 and remain just 65pips above the recent cycle lows at 0.9025.
- For the major pairs, EURUSD has stabilised back above 1.16, while USDJPY has been edging lower after 158.00 capped the price action yesterday. BOJ rhetoric on intervention appears to have stalled the USDJPY recovery, despite fiscal headwinds remaining a key area of concern in Japan.
- MBA mortgage applications, ADP employment, the final Services PMI and ISM Services are on the data calendar for today. A set of ECB speakers as well as BoC's Macklem are scheduled, and the Fed will release its most recent beige book.
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ESM ISSUANCE: 10-year mandate
Feb-02 10:33
"The European Stability Mechanism has mandated BofA Securities, Natixis and Santander to joint lead manage a new EUR 10-year benchmark, maturing on the 25th February 2036. No further group." From market source
- MNI looks for a E2-3bln and we note the timing is not a surprise given an RFP was issued last week. We had thought a transaction today was sligthly more likely than tomorrow, but now assume this will be tomorrow's business.
GERMAN T-BILL AUCTION RESULTS: 3/9-Month Bubill
Feb-02 10:33
| Type | 3-month Bubill | 9-month Bubill |
| Maturity | May 13, 2026 | Nov 18, 2026 |
| Allotted | E1.625bln | E1.66bln |
| Previous | E1.4bln | E1.14bln |
| Total sold | E2bln | E2bln |
| Target | E2.0bln | E2.0bln |
| Avg yield | 1.985% | 1.987% |
| Previous | 1.988% | 2.005% |
| Bid-to-cover | 3.42x | 3.89x |
| Previous | 2.56x | 3.41x |
| Bid-to-offer | 2.78x | 3.23x |
| Previous | 1.8x | 1.94x |
| Previous date | Jan 05, 2026 | Jan 05, 2026 |
GILTS: Off Highs As Risk Stabilises & PMI Marked Higher, Curve Flatter
Feb-02 10:31
Stabilisation in wider risk sentiment (equity index futures and precious metals off lows) and the modest upward revision in the final UK manufacturing PMI have helped gilts away from session highs after risk-off Asia-Pac trade drove a rally at the open.
- Futures ultimately stick within the range established over the prior couple of sessions, last +23 at 91.08 after topping out at 91.21.
- Initial support and resistance located at the Jan 29 low (90.48) and 20-day EMA (91.43), respectively, bearish technical cycle intact.
- Yields little changed to 1-2bp lower, curve flatter. 10s still failing to move definitively away from 4.50%.
- GBP STIRs back from dovish session extremes, SONIA last flat to +2.5, BoE-dated OIS pricing ~38.5bp of cuts through November (~0.5bp more dovish on the day).
- Thursday’s BoE decision is set to headline this week.
- There will be focus on the vote (which from the early previews we have read is expected to be 7-2 with risks of 6-3) but the main focus is likely to be twofold: firstly on the Agents' Annual Pay Survey which will be announced alongside the decision and which the MPC have already been privy to and will be used as a guide for how sticky wage inflation is expected to be through 2026.
- Secondly, the individual member paragraphs will be watched - particularly Governor Bailey, Breeden and Ramsden (assuming neither of the latter two vote for a sequential cut). Any hints guiding towards a March cut will be key here.
- On the supply front, the DMO will come to market with GBP4.25bln of the 4.75% Oct-35 line tomorrow.
BoE Meeting | SONIA BoE-Dated OIS (%) | Difference vs. Current Effective SONIA (bp) |
Feb-26 | 3.730 | +0.5 |
Mar-26 | 3.678 | -4.7 |
Apr-26 | 3.546 | -17.9 |
Jun-26 | 3.490 | -23.5 |
Jul-26 | 3.411 | -31.3 |
Sep-26 | 3.379 | -34.5 |
Nov-26 | 3.342 | -38.3 |
Dec-26 | 3.347 | -37.8 |
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