The dollar index rose on Thursday with the help of fresh two-decade EUR/USD lows as investors struggle to imagine how the euro zone authorities will deal with mounting pressures from rising inflation, energy insecurity and the threat of recession.
EUR/USD surrendered earlier gains that had been brought on by slightly better risk appetite, a sharp rebound in bund yields and ECB meeting accounts nL8N2YO54G indicating greater willingness to raise rates faster to fight inflation.
Ten-year Treasury yields shrugged off disappointing U.S. labor data market data nL1N2YN2B0, rebounding from Wednesday's trough, their lowest levels since the Fed hiked rates 75bps on June 15.
Board Governor Christopher Waller nW1N2WO01W and St.
Louis Fed President James Bullard nW1N2Y903P highlighted the need to raise rates quickly to prevent inflation expectations from becoming imbedded, and EUR/USD fell below 1.1050 afterward, with a drop to parity increasingly anticipated.
EUR/USD fell 0.23% and other than figure support at 1.0100 and the 76.4% Fibo of the entire 2000-08 advance at 1.0071, the next major historical support is 0.9860 and 0.9600.
If U.S. payrolls data reinforce the notion the U.S. labor market is gradually starting to loosen from extremely tight levels, the oversold EUR/USD might get some relief nL1N2YO1DS.
Ten-year bund yields also gained 9bp, but that looked more a reflection of the market having taken yields too low this week and lingering concerns about energy insecurity in Europe stemming from the war in Ukraine.
More talk about Chinese fiscal stimulus helped reduce global recession fears, but the zero-COVID policy remains a wild card.
GBP/USD gained 0.7% after Boris Johnson quit as UK prime minister nL8N2YO1BH following many weeks of anticipation.
Sterling had already plunged 16.6% from June 2021's peak, but its bounce following Johnson's resignation may be transitory nL1N2YO1E5.
The BoE should watch closely how sterling's recent fall is feeding into the country's high inflation rate, policymaker Catherine Mann said nS8N2Y300X.
Chief economist Huw Pill said he would consider a faster pace of tightening to tackle "uncomfortably high" inflation if needed to root out persistent price pressures nS8N2Y3010.
USD/JPY was up 0.14% on rebounding Treasury yields and equities.
But to clear its 24-year peak at 137 on EBS, USD/JPY might need Treasury yields to continue higher after Friday's employment report and next Wednesday's CPI data nL1N2YO1DP.
Aussie extended its rebound away from the crucial 50% Fibo of the pandemic wide at 0.6758 probed in four of the last five sessions.
Soaring energy and minerals prices, as well as better risk acceptance helped it to a 0.8% gain.
Bitcoin and ether found support from improved risk taking, adding to a string of recent higher lows and highs following the H1 collapse.
Next up, investors will scrutinize Friday's non-farm payrolls, jobless rate, average hourly earnings and participation rate as inflation indicators.
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