The dollar held steady against the euro and sterling on Friday as Treasury, bund and gilts yields all retreated in similar fashion from this week's highs, while USD/JPY fell as less limber JGB yields were only modestly lower and risk-off flows favored the haven yen more broadly.

The pullback in yields was likely helped along by 10-year Treasury yields on Thursday failing to trade above 2022's post-pandemic and GFC highs at 4.338%, encouraging profit-taking by shorts ahead of the weekend and next week's Jackson Hole symposium.

Friday's Japan and euro zone inflation data didn't favor higher yields, nor did the dive in UK retail sales.
Meanwhile, investors are weighing the extent of China's financial and economy downside risks against government stimulus efforts that so far appear insufficient.

EUR/USD was flat after it eked out new trend lows, but held just above the June 30 swing low support.
It's unlikely the market will put much stock in European Central Bank chief economist Philip Lane's hopeful longer-term outlook for the euro zone.
The market continues to favor a final 25bp ECB rate hike before a very gradual retreat.

USD/JPY fell 0.45% in line with sliding Treasury-JGB yield spreads.
Friday's session sent a warning to bulls by snapping a string of eight straight sessions of higher lows and highs that had left USD/JPY overbought.

Large 145 options expiries over the next week may cushion the correction, but new post-pandemic peaks in 2- and 10-year Treasury yields may be needed for USD/JPY to make new 2023 highs.

Sterling traded flat, having recovered from the earlier slide on the bigger-than-forecast drop in UK retail sales.
Febrile UK inflation indicators underpin gilts yields and expectations the BoE has 75bp of further hikes ahead before rates peak at 6%.

Even with Chinese state banks reported supporting the yuan, USD/CNH erased earlier losses after finding support by June's prior peak.

AUD/USD was marginally higher, recovering after hitting its lowest level since November on Thursday.
USD/CAD traded at its highest since June 1 before finishing near flat.

U.S existing home sales on Tuesday is the next event risk prior to Wednesday's global August PMIs, followed by Jackson Hole events later in the week.

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