Citi

European Open

Positivity seemed to mark the Asian morning, which saw USD offered against most currencies. The largest gainers were AUD, NZD and NOK, all of which traded up around 0.6% as risk sentiment seems to have improved. KRW also gained by 0.58%, on the back of equity inflows. AUD saw dovish messaging from the RBA minutes today morning. However, this did not translate into AUD weakness, with most of the dovishness a reaffirmation of past messaging. Notable gains were seen in gold, which rallied by 0.58% as uncertainty lingers.

Looking ahead, to another day light on data, the G10 will be marked by several central bank speakers. BoE's Catherine Mann (11:00 BST) and Governor Andrew Bailey (13:05 BST) will be closely watched following Bailey’s hawkish messaging over the weekend. USD will see Fedspeak from Daly (16:00 BST) and Bostic (19:50 BST). EUR's Rehn (09:15 BST), Panetta (13:00 BST) and Lane (14:00 BST). Norges Bank Deputy Governor Bache Speaks (12:00 BST). EM will see 2 rate decisions today, starting with IDR (08:20 BST) and HUF (13:00BST). Citi Economics forecasts no change for the former, and a 15bps hike for the latter.

Credit Agricole

Asia overnight

Reports that Chinese officials are considering asking media companies to let rivals access and display their content in search results had little impact on Chinese technology stocks. Investors also were heartened by a dip in UST yields. At the time of writing, most Asian bourses were trading higher and S&P500 futures roughly flat. Lower UST yields weighed on the USD and it was the weakest performer in the G10 in the Asian session. The Antipodean currencies were the strongest performers. The AUD was held back by a dovish set of RBA Minutes.

EUR: the revenge of the ECB doves The EUR has recouped some lost ground vs the USD and the GBP of late while extending its recent gains vs the JPY. We think that part of the recovery is driven by the recent recovery of the Eurozone money market rates. Indeed, the 2Y EUR swap rate hit its highest level since June 2020 and therefore one of its highest levels in almost two years. In turn, the moves reflect the repricing of future ECB rate hikes with the Eurozone, with investors now expecting a 10bp hike in 2022 and attaching a c.80% chance to a 25bp hike by the end of 2023.

That being said, some cautiousness maybe warranted on the EUR in the very near term, given that, on the day, focus will be on speeches by a number of ECB ‘doves’: Olli Rehn, Philip Lane, Mario Centeno and Fabio Panetta. Indications that some of the policymakers are pushing back against the latest repricing of ECB tightening risks can hold the latest EUR recovery in its tracks. Looking further ahead, however, our view remains that the ECB policy normalisation plans (expected to be announced in December) should make the EUR a less attractive funding currency without triggering a sharp selloff in the Eurozone stock markets or the high-yielding EGBs.