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Oct 19 - 04:55 PM

EUR/USD - COMMENT-US Recap: EUR/USD Down On Treasury Yield Rise, Haven Dollar Demand

By Randolph Donney  —  Oct 19 - 02:10 PM

The dollar index rose about 1% on Wednesday as record euro zone nL8N31K29E and 40-year-high UK nL8N31K14Q inflation heightened recession fears, sending safe-haven flows into the U.S. currency.

Meanwhile, 10-year Treasury yields rose to 14-year highs, adding to support for the dollar.

The recent pullback in gilts yields due to the government's fiscal U-turn and the BoE's attempts to calm markets persisted, but in curve-flattening fashion after the BoE said that QT beginning on Nov.
1 will not involve maturities beyond 20-years.

Investors shrugged off more weak U.S. housing data nL1N31K15W, with a fourth consecutive 75bp Fed rate hike still priced in for Nov.
2 and the early 2023 terminal rate now by 5%.

Gilts yields eased on hopes the worst of the UK pension fund crisis is over nL8N31K53F but have become a drag on sterling as Treasury and bund yields rise to new long-term highs.

Sterling fell 1% to tenkan support just above Monday's 1.1175 low.

EUR/USD fell 0.9% toward tenkan support at 0.9753 amid Wednesday's risk aversion.

USD/JPY was up 0.4% to its highest since 1998 and very nearly at major psychological resistance at 150.
The gain in Treasury yields was unopposed by BoJ-corralled JGB yields and no willingness to lift rates to help the MoF's interventions to support the yen nL1N31K1AB.

USD/JPY cleared technical hurdles near 149.50.
Another bout of Japanese selling would be viewed as a buying opportunity unless materially weaker U.S. employment and inflation data pointed to a nearer peak in Fed funds and Treasury yields.

USD/CNH and USD/CNY were up 0.66% and 0.39%, with the offshore yuan making record highs and USD/CNY close to September's 14-year highs, as the Chinese economy struggles with a weakening property sector, ongoing COVID lockdowns and widening Treasury yields spreads over Chinese government debt.
Also worries about delayed China economic data releases.

For more click on FXBUZ

Refinitiv IFR Research/Market Commentary


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