The dollar fell on Friday as profit-taking on gains following the hawkish Sept.
22 Fed meeting persisted into the new quarter, though the selling slowed somewhat after above-forecast ISM manufacturing nN9N2NL01Z and Michigan sentiment nAQN04PBJV.
The day's data also included consumer income, spending and PCE data nL1N2QX0W1 that was less supportive of the dollar, which appears set to retrace more of its recent gains as markets prepare for next Friday's jobs report nL1N2QX1BA, seen as key to a November tapering announcement from the Fed.
Uncertainty regarding U.S. fiscal policy nL1N2QX0QG also encouraged Treasury yields and the dollar to retreat.
Euro zone inflation jumped to a 13-year high in September nL8N2QX193, but core inflation's rise to 1.9% y/y from 1.6% y/y still leaves it below the ECB's 2% target, while European PMIs weakened along with those in Asia as supply chain bottlenecks weighed nL1N2QX0D4.
The ECB is wary of tightening too soon nL8N2QU3NK, which should allow Treasury yields to remain well above still negatively yielding Bund yields out to 10-years and limit EUR/USD gains unless the Fed's policy normalization plans unravel.
EUR/USD's 0.19% gain and marginally higher low provided food for thought for bears given high stakes heading into next Friday's U.S. jobs report nL1N2Q42I7, forecast to rise 460,000, especially after three weeks of rising initial jobless claims nL1N2QX15Z.
EUR/USD's Thursday low at 1.1563, its lowest since July 2020, was followed by Friday's 1.1564 low, but so far prices have just bounced back to the lower 30-day Bolli band by Friday's 1.1607 high on EBS.
Sterling was up 0.65%, extending its recovery from the post-Fed meeting plunge below major supports, with prices now back up by the July and August lows they broke below Tuesday.
Some of the pound's recent fall was due to UK gasoline and energy supply disruptions that may be subsiding.
Sterling is supported by expectations that the BOE will raise rates by February, well ahead of views on the Fed for late 2022, though further gains will likely need the aid of recovering global risk acceptance.
USD/JPY fell 0.23%, amid the broader pullback in the overbought dollar and sizeable drop in Treasury yields, particularly in the belly of the curve, where tapering and eventual Fed rate hikes would have their biggest effect.
Friday's lows probed below the 38.2% Fibo of the post-Fed rally at 110.95 by Tuesday's 110.935 low.
Broader support, should prices close below 110.93, is centered on 110.60.
Options pricing suggests further consolidation of the 109.12-112.08 post-Fed rally before U.S. nonfarm payrolls nL1N2QX1IL.
AUD/USD gained 0.64%, with even bigger gains in recently battered high-beta currencies, all breathing a sigh of relief as "risk-free" Treasury yields backed off and U.S. stocks rebounded.
Bitcoin and ethereum were up roughly 9%, erasing their Sept.
20 breakdowns, perhaps getting a boost from Fed Chair Jerome Powell's comments on Thursday about having no plans to ban cryptos nL1N2QX1B5.
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