FX Update: Digesting the FOMC reaction.

Interesting test tomorrow for HUF on rate hike. The Hungarian central bank has thoroughly flagged a rate hike at tomorrow’s meeting as Hungary will be the first country in Europe to hike rates, with a fairly dispersed set of forecasts from analysts. The rate is at an odd 0.60%, with some looking for moves in multiples of 0.15%, with consensus centered on a hike of 30 bps to 0.90%. There will be considerable focus on the guidance as well, and considerable hawkishness seems in order to lift HUF, given what the Fed has just done to the US dollar. Interestingly, the move lower in EURHUF, for example, that unfolded when the Hungarian central bank made it clear in mid-May that a hike was coming, has been completely unwound.

Sweden – drama in politics, if not in SEK. The SEK is sharply weaker versus the USD and even versus the Euro on the repricing of the leading central banks’ potential to hike rates sooner than previously expected. It is far too soon to decide if we have a compelling re-entry point for SEK longs versus the euro or elsewhere as another wave of weak risk sentiment could see another squeeze on SEK longs. I lean more toward fading EURNOK upside from here with caution and via options structures. The current Swedish Social Democrat leader, Löfven, lost a confidence vote today and will have to decide whether to resign or call snap elections. The current government is a very weak Social Democrat-Green coalition and the far-left Left party abandoned its support for the coalition in the confidence vote. The development that precipitated the crisis for the sitting government was the talk of new measures to ease rent controls on new housing developments as the existing rules have prevented new supply from coming on the market as developers don’t see sufficiently high returns on new units for lower income households. A huge wave of immigration that added several percent to Sweden’s population in recent years has turned the housing situation into a pressure cooker. Implications for SEK have been modest to non-existent as there is little prospect for new political developments even if Löfven resigns, with the blocs deadlocked in the polls, and as a caretaker government could result, one that would sit until elections in September of next year.

Table: FX Board of G10 and CNH trend evolution and strength
No surprises here, as the USD and JPY have risen to the top of the heap, with the CNH playing its usual role as a low-beta US dollar, while interesting to see that the weakest of the G10 currencies latest have been the two Scandies. We prefer leaning against further NOK weakness before taking a view on SEK just yet.

Table: FX Board Trend Scoreboard for individual pairs
Here, note that EURCHF is looking to turn positive again on the theme of more hawkish signals from global central banks. Note as well that the readings for the likes of EURUSD and USDSEK are getting quite spicy at absolute values near 8, levels that are hard to sustain.

Upcoming Economic Calendar Highlights (all times GMT)

• 1230 – US May Chicago Fed National Activity Index 
• 1230 – ECB President Lagarde to speak 
• 1345 – US Fed’s Bullard (non-voter) and Kaplan (non-voter) to speak 
• 1900 – US Fed’s Williams (voter) to speak 
• 2100 – New Zealand Q2 Westpac Consumer Confidence