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May 09 - 05:55 PM

EUR/USD - COMMENT-US Recap: Bullish EUR/USD Day As Cooling US Jobs Data Trend Extends

By Randolph Donney  —  May 09 - 02:10 PM

EUR/USD reversed early losses that held exactly at last Friday's pre U.S. jobs data lows, and rose 0.25% after initial jobless claims jumped to their highest since August 2023, weighing on Treasury yields and the dollar.

Next, markets will be looking ahead to U.S. CPI and retail sales reports on May 15.

The dollar index fell 0.25%, and sterling's post-BoE meeting slide to 11-day lows at 1.2446 was more than reversed.
That slide came as the number of votes for a rate cut rose from one to two and Governor Andrew Bailey said the BoE might need to ease by more than the market expected and it could start at its next scheduled MPC announcement on June 20.

But sterling rebounded as a June BoE rate cut was still being priced at less than a 50% probability, with slightly more than two rate reductions expected by year-end.

The rebound was catalyzed by the unexpectedly large rise in U.S. jobless claims as that followed last week's reports showing the smallest increase in non-farm payrolls in six months, a modest 0.2% rise in average hourly earnings and a three-year low in job openings.

Markets are also trying to reconcile the much weaker than forecast and recessionary ISM indexes last week, with both posting sharp rises in their priced paid indexes.

Treasury yields fell roughly 3bp from 2- to 10-year tenors on Thursday, awaiting next week's key CPI and retail sales reports.

Cooling U.S. data also creates less angst over Fed tightness and greater risk-on flows that support the risk-sensitive pound and Aussie, which rose 0.5%.

EUR/GBP edged higher, with today's bullish key day reversal and bullish engulfing EUR/USD candlestick favoring the euro beyond the slightly more dovish than expected BoE event.

USD/JPY's rapid recovery from last week's 160.245-151.86 collapse stalled on Thursday after nearly retracing half of that collapse at 156.05, and then being tugged back to near flat by the jobless claims report.

Treasury yields and Fed expectations remain the most enduring forces driving USD/JPY as suspected Japan yen buying last week was used as a discount for carry traders and Japanese importers.

While the MoF has since reiterated action could be taken to defend the yen from excessive and speculative losses, intervention looks a bigger risk near last week's 160.245 high by 1990's 160.35 peak.

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Refinitiv IFR Research/Market Commentary


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