The dollar extended its recovery on Friday, even without the help of rising Treasury yields, as investors remained sufficiently shell shocked following this week's bond market rout to bid up the safe-haven U.S. currency.
Ten-year Treasury yields found support near where they broke out higher in Thursday's spike, with a little help from January consumer income, spending and price data showing a fiscal-stimulus-funded 10% surge in personal income and the biggest rise in consumer spending in seven months nL1N2KW1HE.
Still, with inflation fears gripping markets, core PCE price growth came in relatively restrained at 1.5%, a tad above expectations but steady on the month and well below the Fed's 2% target.
A jump in the savings rate to 20.5% from December's 13.4% also suggested some restraint in spending.
However, with a $1.9trln relief bill being finalized by Congress, and three-quarters of that money going to direct payments to individuals, markets are pricing in another wave of income, savings and spending.
Thus, Treasury yields are likely to remain in a normalizing uptrend, with gradual pricing in of Fed tightening next year supporting the dollar, despite policymakers' protestations that they are nowhere near tightening nS0N2JQ00R, though also untroubled by rising in yields nL1N2KV2D7.
Conversely, alarm bells are going off at the ECB regarding the recent rise in euro government bond yields nL8N2KV1RF, with Greece's central bank chief today calling on the ECB to lift its bond purchases nL8N2KW6WZ.
EUR/USD hit session lows in New York afternoon trading, breaking the 50% Fibo of February's rebound, with support in the 1.2020s next.
Gold prices tumbled below key supports, also signaling increasing haven and yield-driven demand for the dollar.
Sterling sank to its lowest in six sessions, as the overbought pound saw longs booking profits after this week's peak nearly reached the post-Brexit referendum high and as BOE Chief Economist Andy Haldane warned about inflation pressures, sending Gilt yields higher nL1N2KW2C8.
EUR/GBP's rebound from oversold depths Wednesday was rejected by the 21-day moving average.
USD/JPY was headed for a 50% Fibo of the pandemic downtrend at 107.155 after closing above the 38.2% Thursday, as well as the monthly tenkan and prior February peak at 106.22.
The 161.8% Fibo target off January's base is at 107.32.
Prices are largely rising with Treasury-JGB yields spreads that are about to lose any drag from rising JGB yields as 10-year yields near the BOJ's YCC cap nL1N2KW1XP.
Aussie and other commodity or emerging market currencies extended their retreat from Thursday's highs, with AUD/USD at its lowest since Feb.
9 after nearing 2018's peak on Thursday.
Pivotal 55-day moving average support is at 0.7703, near Friday's 0.7711 low.
In the run-up to next Friday's U.S. jobs report, markets will watch to see if the retreat in asset inflation trades and rebound in the dollar persist into the new month.
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