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Jan 09 - 03:55 PM

EUR/USD - COMMENT-US Recap: EUR/USD Hits 7-Month High As Fed Hike And China Fears Recede

By Randolph Donney  —  Jan 09 - 01:55 PM

The dollar fell on Monday in carry-over selling from Friday's U.S. jobs and service sector data that dimmed Fed rate-hike fears, with risk-on flows dimming its safe-haven appeal, particularly versus high-beta currencies nL1N33U178.

EUR/USD rose 0.9% after clearing December's high and the 61.8% Fibo of 2022's downtrend at 1.0737/44 with its current 7-month high at 1.07605 on EBS.

The unexpected rise in core euro zone inflation on Friday and Monday's ECB warning that it sees "very strong" wage growth over the next few quarters nF9N31S027 contributed to EUR/USD's gains.

More broadly weighing on the haven dollar, and to less extent the yen, were gains in the yuan and markets that would benefit from China's post-COVID reopening and other efforts to bolster growth nL4N33U0FT.

The hope is that after a weak Q1, Chinese growth will rebound, supporting global growth and reducing global recession risks, but also underpinning commodity prices and inflationary pressures.

A 20bp rise in 2-year bund-Treasury yields spreads to their highest in nearly a year points to further EUR/USD gains unless U.S. CPI and other wage and inflation data begin printing above forecast.

Sterling rose 0.72%, getting enough support from rising rate spreads and risk acceptance to clear the 21-day moving average for the first time since Dec.
21, and leaving the recent range tops by 1.2100 below to support.

Bank of England Chief Economist Huw Pill said on Monday that Britain is at risk of persistent inflationary pressure from a tight labour market nL8N33U4QC, while the UK deals with strikes nL8N33U20W and manufacturers worry about the country becoming less attractive nL8N33R36J.

Key sterling resistance is December's 1.2446 peak by 61.8% of 2022's downtrend.

USD/JPY fell 0.2% in line with 4-5bp drops in Treasury yields from 2-years and beyond.
Two-year JGB yields remain near zero, and the BoJ's new 10-year yield cap at 50bp might be lifted to 75bp in Q2, but Treasury yields remain crucial.

For more click on FXBUZ

Refinitiv IFR Research/Market Commentary


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