FX wrap – GBP volatile on BoE surprise, JPY and CHF under pressure, USD follows yields up

USD was firmer on Thursday, largely due to a rally in treasury yields with the DXY tracking the 10 year yield higher to a peak of 102.470 after bouncing off the psychological 102 support level. US data was mixed with Unemployment claims and current account figures coming in worse than expected, but this was offset by a beat in Existing home sales. There was a selection of Fed speakers, with the Chair Powell headlining. Little new was revealed with Chair Powell re-iterating the FOMC broadly feels it will be appropriate to raise rates again this year which surprised no-one.

GBP was volatile after the BoE somewhat surprised markets with a larger than expected 50bp hike, going into the meeting a 25bp was the favoured outcome by economists, but a 50bp was partially priced in so not a totally unexpected move from the BoE. The bank also maintained guidance further tightening would be required if there was more evidence of persistent inflation. Post decision GBPUSD hit a high of 1.2838 in a knee jerk reaction before reversing the move and eventually hitting lows of 1.2728 in similar price action we saw after Wednesdays hotter than expected CPI figure. GBP price action is indicating the market feels further hawkish re-pricing of BoE action is limited, with fears that the current projected path will lead to recession in the UK weighing on the Pound and Cable will struggle to breach the major resistance at 1.28.

CHF was lower vs the USD after seeing weakness in the aftermath of the SNB rate decision where the SNB hiked by 25bps disappointing some market participants who were looking for a 50bp move. The SNB did note however that additional rate hikes will be necessary. After an initial spike lower to test the 0.8900 support zone, USDCH reversed course, hitting a high of 0.8973 before finding some selling.

JPY was the G10 underperformer with USDJPY printing a fresh 2023 high of 143.22 after breaching the key 142.50 level , with a CPI report coming up today, another close above this level could see a technical continuance to test the 145 level. Recent Fed speak has also raised the issue that US treasury yields are likely to continue to rally, increasing the rate differential between US10Y and JGBs which will also be a major tailwind to get the pair to 145, which is where the BoJs November USDJPY intervention was launched.

Todays calendar of major risk events below: