EUR/USD, GBP/USD, USD/JPY flows - false extensions as bonds U-turn
Some exhaustion showing, with bond demand on weakness highlighting how far and fast mkt has already moved
Better outright and hedging demand tending to show into knee-jerks, from bonds to JPY
UK GDP beats again, although also already has a lot of tightening priced in. Cable dollar-led
Attempts to extend the dollar action to some more major reference levels ultimately prove to be potential false breaks, seeing overbought runs recoiled, led by the swift U-turn in bonds. US10s put in a strong reversal bar post CPI and extended into Asia as tech and Kospi (-7%) led equity pressure extended. High to low, 10s reversed almost 25bp, suggesting that strong demand is showing at the 5.3%+ tops in terms of better value either outright or as hedging. Oct hike odds also backed off to 30% with bets concentrated on Dec (90%+). Fed’s Daly also stuck to the ‘likely hikes, no urgency’ message. Median CPI at 0.23% on the month and 2.8% annualized was also less hot than the straight core print. Action overall starting to highlight and respond to the fact that a lot is in the price, especially on the bond side, and that this is acting as a natural speed-bump now as attempted extensions are faded. USD/JPY had already been showing good supply towards 159 and that was also further evident in Asia.
UK GDP continues to show better resilience than expected with a 0.1% gain, defying expectations for a 0.1% correction and with yr/yr back above 2%. While the market already has a lot priced in and even the hawks on the MPC are sceptical about how much, data at least notionally goes with the grain of the dollar-led cable bounce. GBP/USD also left behind a spike test to 1.3140 support before reversing. 1.3273/00 is key resistance on the bounce though and needs to be cleared to be putting in a more confirmed n/t low.