The dollar rose on Thursday as longer-dated U.S. Treasury surged deeper into pre-pandemic levels a day after the Fed made no attempt to stand in the way of this year's bond market selloff.
EUR/USD held onto losses suffered in early European trading as Treasury yields surged faster than Bunds in a curve steepening move, reaffirming the importance of last week's high by the 38.2% Fibo of the January and February fall at 1.1991.
The 10-year Treasury-Bund yields spread widened another 6bp on Thursday and is up roughly 50bp this year.
The 2-10-year Treasury yield spread has surged to 1.57%, its highest since July 2015, while the 2-10-year Bund spread at 42bp is only by February's high and below last year's high.
Ten-year yields face major resistance near 2.0%, which now seems well within reach given the current yield at 1.74%.
Softer jobless claims and strong Philly Fed nL1N2LF398, following wild retail sales and industrial production pullbacks, show just how jagged the economic recovery could be coming out of the pandemic.
This could cause choppy forex trading near-term, but for now the Fed has done the dollar a favor by staying out the bond market's way, unlike the ECB which has vowed to fight rising yields nL1N2LG1G6.
Key for EUR/USD will be whether it can hold the 200-day moving average by March's lows nL1N2LG1LU.
On the vaccine front, which is intrinsic to pandemic recovery prospects, the EU's drug watchdog said it is still convinced the benefits of AstraZeneca's COVID-19 vaccine outweigh the risks, lifting some of the recent gloom nL8N2LG602.
But, France is imposing light new 4-week lockdowns in Paris and other areas nP6N2KF02E.
Sterling slid versus the dollar after the BoE meeting was seen as a shade dovish versus expectations nL1N2LG1DM and after its post-Fed peak in early London trading ran into offers by last week's high and the 50% Fibo of the retreat from February's peak at 1.4010.
USD/JPY continued to consolidate this year's outsized and overbought gains ahead of major resistance and with most spec shorts already squeezed out.
The BOJ is expected on Friday to tweak policy to help local banks and investors, but it will be small change compared to surging Treasury yields nL1N2LG1LO and U.S. growth.
AUD/USD surrendered gains that had come on very strong aussie jobs data nL1N2LG01P as the U.S. currency rose while risk aversion also weighed.
With little on the U.S. economic calendar over the next several days, the focus will be Treasury yields.
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