The dollar's advance since last week's hawkish Fed meeting shifted into higher gear on Wednesday as it forced EUR/USD beneath August's low and hit fresh 2021 highs against the pound and yen, potentially signaling a thorough reversal of its pandemic downtrend.
The dollar ran roughshod over haven and high-beta currencies alike with markets increasingly convinced the Fed can begin tapering stimulus by year-end, supporting rising Treasury yields in a global investment environment that lacks safe assets with reasonably positive yields.
Fed Chair Jerome Powell reiterated the Fed normalization view nL1N2QV21Y while acknowledging tension between high inflation and elevated unemployment nW1N2B8020.
Markets see the Fed better able to reduce the stimulus that cratered the dollar during the pandemic, than the ECB and BOJ, and perhaps even the BOE.
EUR/USD fell 0.72%, with euro zone inflation readings for September hotter than forecast, but not seen producing greater ECB urgency in tapering and certainly not actually tightening.
November's low at 1.1602 and the 100-week moving average at 1.1601 were breached late in the day.
A breakdown below 1.1600 could see the 50% Fibo of the pandemic rally and March 2020's spike high at 1.14925/95 on EBS become the next major target nL1N2QV1J1.
Sterling slid 0.75%, down 1.7% for the week and bereft of major support until the 38.2% Fibo of its pandemic recovery and weekly cloud base at 1.3166/575 nL1N2QV1P3.
Ongoing UK delivery, supply and energy problems, some made worse by Brexit friction, have also dimmed demand for risk-sensitive Sterling.
USD/JPY gained 0.45% to new pandemic recovery highs above 112.
With BOJ Governor Kuroda affirming the bank plans to remain extremely accommodative nL8N2QV50K, Treasury-JGB spreads can rise unimpeded as the Fed tapers and tightens.
The main potential impediments to USD/JPY's swift advance are long-term resistance in the 112.23-43 range nL1N2QV1VS and increasingly overbought oscillators.
That said, prices are exiting their tightest range-trading period since 2014 on weekly charts, so a major breakout would not be unusual afterward, with broader tech targets at 114.54-55.
AUD/USD and NZD/USD fell 0.7% and 1.18%, respectively, with USD/CAD and USD/MXN up 1.4% and 0.5%.
USD/CNH was up a modest 0.2% amid the ongoing Evergrande saga, electricity outages and reports Chinese regulators are clamping down on FX activities nL4N2QU383.
Bitcoin and ethereum were well contained again, modestly higher with rebounds in stocks.
Thursday features month-end flows and U.S. jobless claims, ahead of Friday's global PMIs, ISM manufacturing, core PCE, income and spending, and Michigan sentiment.
That as Congress tries to keep the government's lights on.
But the primary market focus is the Oct.
8 U.S. jobs report Fed officials are focused on before beginning to taper.
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