The dollar roared back against the euro, sterling and most currencies on Friday as risk investors reconsidered their initial celebratory reaction to this week's central bank meetings and faced up to the notion that the Fed remains a more credible threat to raise rates than the ECB.
The allure of still relatively high Treasury yields and the dollar was enhanced by widespread stock market losses, sending EUR/USD and the dollar index back to where they were before Wednesday's Fed meeting.
Fed Governor Chris Waller said that the March Fed meeting should be live as a first rate hike window nS0N2OC00P, giving Treasury yields and the dollar an added boost.
A broader retracement of the dollar's pandemic plunge remains likely, though it may encounter headwinds due to its huge gains from May's lows and more thorough pricing in of Fed-ECB policy divergence.
November's highs also hit the measured objective of this year's inverted head-and-shoulder reversal pattern nL1N2T21CJ.
EUR/USD lost 0.65%, likely aided by the German Ifo index missing forecast and falling for a sixth straight month nL1N2T20KB.
Daily and monthly momentum remains bearish and Thursday's fleeting rebound failed to produce a close above the pivotal 30-day moving average nL1N2T21CF.
Sterling slid 0.48%, relinquishing post-Fed and BoE meeting gains, as the risk-sensitive pound was unable to benefit from early higher gilt-Treasury yield spreads that reflected demand for the safety of Treasuries and the dollar.
Thursday's 1.33755 risk-relief rally high was rejected by 61.8% Fibo resistance, while Friday's sell-off was capped by the 50% Fibo and daily kijun, with a bearish sub-tenkan close in prospect, snuffing out December's rebounds away from major Fibo supports nL1N2T21CF.
A series of record-high UK COVID cases and political uncertainty are undermining the pound, despite the BoE being the first major central bank to hike rates nL1N2T10U5.
USD/JPY recovered from early losses and dip back into the daily cloud to end about flat after short-term Treasury yields rebounded to post modest gains, though still in bear curve flattening fashion.
Thus far, the eurodollar curve is pricing in a shade less than the six 25bp rate hikes Wednesday's Fed dot plots suggested, but Friday's BOJ meeting highlighted that rate hikes there remain highly unlikely over the next two years nL1N2T200F.
The Australian and Canadian dollar fell 0.6% and 0.8%, respectively as derisking flows and falling commodities weighed.
Bitcoin and ether trudged modestly lower, remaining sidelined in the face of faster Fed policy normalization.
There's little on the economic slate next week other than Thursday's core PCE, personal income and spending ahead of the holiday.
For more click on FXBUZ