The dollar index rallied 0.5% on Wednesday, extending recent gains to the doorstep of December 2002's 107.31 pre-collapse high after a batch of above-forecast U.S. data boosted Treasury yields and left EUR/USD slumping toward parity.
Minutes from the June FOMC meeting bolstered markets' existing impression that the Fed has resolved to push rates into restrictive territory if necessary to decelerate inflation nS0N2Y202X.
An above-forecast ISM services index was marred by a sub-50 employment reading, which in turn may have been clouded by difficulties in finding workers.
May job openings exceeded forecasts with an upward revision, while little changed hires, quits and separations left the labor market looking tight nL1N2YN18G -- as job openings out-number seekers two-to-one -- with markets awaiting Friday's non-farm payrolls.
The euro remained under duress over the region's energy vulnerabilities as Russian natural gas supplies dwindle nS8N2W3080, while the ECB prepares to raise rates to fight rising inflation with the hope of somehow avoiding recession and debt market fragmentation.
Another COVID-19 outbreak in China weighed on the global growth outlook as investors feared renewed restrictions could further disrupt supply chains and weigh on demand nL1N2YN038.
EUR/USD fell 0.8%, leaving it down 2.8% this month as parity approaches.
ECB rate hike expectations continued to diverge to the downside from the Fed, sending 2-year bund-Treasury yield spreads down to -2.50% from June's -1.98% high.
By March 2023, the ECB and Fed policy rates are priced at 1.02% and 3.35%, respectively nL1N2YN19P.
Sterling fell 0.3% and traders face political uncertainty, with Prime Minister Boris Johnson beset by a wave of resignations and potential party rule changes that could result in another confidence vote. nL8N2YN51M.
Sterling's modest rebound from Wednesday's 1.1877 low -- its weakest since March 2020 -- looks merely corrective as the UK faces mounting economic issues and the BoE remains gradualist in tightening nL1N2YN158.
BoE rate hikes are priced to peak at roughly 2.9% by March while UK inflation is seen hitting double-digits in H2.
USD/JPY reversed early losses after Treasury yields rebounded from early losses, bolstering two-year spreads.
To get the Fed-led USD/JPY uptrend back on track and past June's 24-year peak at 137, Treasury yields would have to trend higher after Friday's jobs data.
AUD/USD fell 0.2% but again held above crucial support at 0.6758, the 50% Fibo of the entire 2020-21 pandemic wide, aided by the RBA's 50bp rate hike this week and guidance of more to come nL1N2YM07C -- along with steadier stock markets.
High beta currencies were mostly weaker, while bitcoin and ether trod very tight ranges.
ADP suspended release of U.S. private employment reports through the summer as it revamps its methodology, targeting Aug.
31 to reintroduce its new National Employment Report nL1N2YN1TL.
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