The dollar index nudged higher by late New York trade, helped by the euro's retreat from earlier gains and sterling's losses as an ISM manufacturing report highlighting difficulties in balancing supply and demand in the post-pandemic recovery hurt risk appetite nN9N2KB012.
Businesses' inability to meet the robust demand associated with exiting the pandemic, particularly due to labor-market dislocations, signals lost potential with inflationary overtones, though without tightening by the Fed, which sees such frictions as transitory.
core PCE, the Fed's favored inflation gauge, climbed to 3.1% y/y in April nAPN06GLUN, while euro zone May inflation was up 2% y/y, with the core up just 0.9% nL2N2NJ0OP.
That 2.2% spread in core rates more than covers the 1.79% spread between 10-year Treasury yields vs Bund yields, creating a negative real spread favoring EUR/USD.
EUR/USD, was flat and is stalking May and 2021's 1.2266/349 EBS peaks.
Friday's non-farm payrolls report might be the next potential catalyst for a breakoutnL2N2NJ1YI.
Sterling's 1.4250 3-year peak in early trading attracted aggressive selling shortly after surpassing February's 1.4240 pandemic peak.
BOE Deputy Governor Dave Ramsden noted the 10.9% y/y rise in British house prices in May warrants watching along with other inflation indicators nL2N2NJ0AB.
USD/JPY slid 0.21% but held early 109.33 lows at the May 19 swing high that was a breakout point for last week's month-end dollar advance.
The drop from Friday's 110.20 high is reverting toward 10-, 21-, 30- and 55-day moving averages near 109.
The 61.8% Fibo of the May 25-28 rally and the kijun are at 109.19/145 to aid large 109 expiries during Thursday's data-heavy session.
Multi-year highs in oil due to rising demand hopes and OPEC+ sticking with its slow easing of supply curbs triggered a fleeting 6-year low in USD/CAD.
Aussie is up 0.36%, extending the rebound from Friday's month-end selloff that held May's lows.
USD/CNH rebounded after the PBOC raised FX reserve requirements for the first time in 14 years nL2N2NJ06V, but the pair was only up 0.11%.
A move back above the prior key support at 6.4000 is needed to raise doubts about the macro-driven downtrend.
Bitcoin and ether retraced some of Monday's rebound and remained in consolidation after May's overdue correction.
The focus Wednesday will be on the Fed's Beige Book report, following comments from Fed speakers noting attention to inflation, but with doubts about the durability of the current rise in inflation.
Thursday brings ADP, jobless claims and non-manufacturing ISM ahead of Friday's monthly employment report.
For more click on FXBUZ