[MARKET ANALYSIS] FX mixed amid the central bank bonanza, and against the backdrop of escalating geopolitics

DXY flat but off worst levels above 100 in a current 99.99-100.31 range as higher oil prices amid escalating Iranian war, with Iran targeting Gulf facilities across the region, with Kuwait, Qatar, and Saudi coming under fire. Further upside was seen on reports that Saudi port of Yanbu (used to divert some supply) has stopped oil loadings following an attack. Yesterday’s FOMC was net hawkish despite hold rates at 3.50-3.75%, and guidance left unchanged, with Chair Powell stressing the risks to the inflation side of the mandate. Powell indicated that policy remains restrictive enough, easing is not imminent, and the bar for cuts stays evidence based. Goldman Sachs chief economist Jan Hatzius said the statement and Powell’s repeated “wait and see” remarks were “a bit hawkish.” The bank had expected three dissenters (Miran, Waller, Bowman), but the bank still expects two 25bps rate reductions, in September and December, taking rates to 3.00-3.25% by year-end.
EUR flat intraday with the recovery in the USD capping upside and the surge in energy prices cushioning downside heading into the ECB. The ECB is expected to maintain the Deposit Rate at 2.00%, however, the recent Middle East driven energy shock means the ECB is unlikely to assess that policy is still in a “good place”. The main focus for the statement and forecasts will be any signs that the ECB is making a hawkish-tilt to address/acknowledge the inflationary ramifications of the situation; however, the growth impact may negate/supersede this. Meanwhile, European gas benchmarks this morning opened higher by some c. 30% QatarEnergy confirmed Ras Laffan Industrial City had been subjected to missile attacks. EUR/USD trades in a 1.1443-1.1491 range at the time of writing.
GBP flat/subdued amid the recovery in the USD, with no reaction to the UK jobs data (although wages were softer than expected) this morning as the near-term narrative for the BoE's MPC is firmly on the Middle East situation. In terms of the upcoming BoE, the central bank is expected to maintain the Bank Rate at 3.75%, the decision could be subject to dovish dissent from Dhingra and/or Taylor. Though, the Middle East conflict could serve as enough of a potential inflationary shock that all members vote for unchanged. GBP/USD resides towards the bottom of a 1.3245-1.3298 range at the time of writing.
JPY is firmer in the aftermath of the BoJ press conference. Little action was seen on the announcement itself, whereby BoJ policy settings were left unchanged as widely expected, with the decision made by an 8-1 vote as Takata dissented and voted for a 25bps hike. The fireworks for the JPY happened during the press conference where JPY strength seen as Ueda commented on preliminary wage data, and states that momentum at "small and medium sized firms could be better than in past years." USD/JPY trades towards the bottom end of a 159.04-159.87 range at the time of writing.
CHF weakened post-SNB, whereby the central bank left its policy settings unchanged but suggested "willingness to intervene in the foreign exchange market has increased" amid the CHF strength emanating from the Iran war. In brief, the decision was as expected, and the statement points to heightened uncertainty given the Middle East conflict. The main point of the statement was the FX language, commentary that sparked immediate pressure in the CHF as the SNB stated explicitly that it would counter rapid and excessive appreciation. However, this has long been the assumption/case, and thus the move pared. In the presser, SNB Chairman again placed emphasis on the stronger CHF. EUR/CHF rose from a 0.9069 low to a peak at 0.9104. Elsewhere, SEK was unreactive to the Riksbank which kept policy unchanged as expected. Overall, the Riksbank has kept its optionality open in whether the Middle East shock will lead to tighter or looser or monetary policy.
Antipodeans are firmer and clawed back some recent losses with NZD/USD gradually shrugging off weaker-than-expected Q4 GDP data for New Zealand, while AUD/USD was choppy overnight following mixed jobs data in which headline employment topped forecasts, but was solely due to part-time jobs, and the Unemployment Rate surprisingly climbed higher to 4.3% from 4.1%.