The dollar recovered on Thursday from overnight losses versus the euro and yen as strong stock markets weighed most heavily on low-yielding and haven currencies and helped the high-beta ranks after U.S. jobless claims hit pandemic lows and core PPI inched up to 8.6% year-on-year nL1N2R92XV.
The dollar index found support after 5-year Treasury-Bund yield spreads rebounded over 5bp from early London lows nL1N2RA1HB.
The 2-10 year Treasury yield curve flattened as long-term yields fell faster.
The dollar had risen almost in lockstep with the steepening Treasury yield curve since the Sept.
22 Fed meeting.
Profit-taking on both trades increased after the Oct.
8 non-farm payrolls report and Wednesday's CPI and Fed Minutes added little new impetus to expectations that tapering would follow the Nov.
2-3 Fed meeting, with rate hikes likely to follow in H2 2022.
More German growth forecast downgrades nL8N2RA1XC and the ECB's benign view on inflation nF9N2PW017 still favor a lower EUR/USD as the Fed outpaces the ECB in normalizing policy.
EUR/USD slipped 0.02%, retreating back near Thursday's 1.1584 low from its early 1.1624 high on EBS.
The daily tenkan and 10-day moving average it closed above on Wednesday are now support at 1.1581/76.
Investors will scrutinize Friday's U.S. retail sales and Michigan sentiment for consumer resilience during the Delta COVID wave, waning fiscal support and wages falling behind inflation, though new COVID cases are now about half their recent peak.
USD/JPY gained 0.36%, driven higher by risk-on flows that weakened the haven yen and fresh contrast between the Fed's normalization plans and the BOJ's reluctance to withdraw pandemic supports, even after the economy recovers nL1N2RA1TV.
GBP/USD was up 0.17%, but well off its 1.3734 Thursday high by the 55-day moving average, as early risk-on gains faded in the face of falling Gilt-Treasury yield spreads.
BoE interest rate-setter Catherine Mann said she can wait before raising rates, in part because the markets have already done a fair amount of financial tightening in anticipation of multiple-BOE rate hikes nL8N2RA4YF
Two-year Gilt yields fell nearly 10bp from Thursday's early high to their lowest since last Friday's 0.50% low, while 2-year Treasury yields only fell about 1bp on the day.
Nonetheless, the BOE is still greatly outpacing the Fed with rate hikes, despite the FOMC's 2022 voter rotation tilting more to the hawks nL1N2R92NR.
GBP/USD got well above important resistance Thursday before trimming gains nL1N2RA1K1.
The main macro dates are Nov.
3, 4 and 5 -- the Fed, BOE and non-farm payrolls report.
AUD/USD gained 0.49% and USD/CAD fell 0.54% on risk-on flows, higher commodities and early USD weakness.
Enormous spec short AUD positioning is likely helping to fuel short-covering that could take prices sharply higher nL1N2RA1I8.
Ether gained about 5% versus a modest loss in bitcoin.
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