The dollar fell on Thursday, tracking Treasury yields lower on the growing conviction that Fed rate hike pricing peaked after the May 4 FOMC meeting, while data produced more signs that the U.S. economy's frothy pandemic recovery has crested.
Treasury yields slipped since last week's 2-year and 10-year peaks were capped close to 2018's prior Fed tightening cycle highs.
An unexpected rise in jobless claims, another disappointing regional Fed update and more evidence of housing market stress nL2N2XB0YA added to dollar weakness.
Driving the dollar index's roughly 1% dive, was EUR/USD more than 1% gains as 2-year Bund-Treasury yield spreads dropped to their lowest since mid-March, when the index was trading roughly 5% lower than now nL2N2XB1KR.
ECB meeting accounts nF9N2UZ01X reinforced the pricing in of more rate hikes from July.
The deeply oversold EUR/USD's failure last week to break 2017's low and the STXE 600 index outperforming the S&P 500 index since the FOMC meeting are also fostering EUR/USD's recovery nL2N2XB1KR toward May's post-FOMC high at 1.0642.
Sterling was up 1.3%, aided by record growth in UK manufacturer orders and a rebound in export orders in May nL5N2XB33G, but has made little progress above Tuesday and Wednesday's high by 1.2500 due to doubts about BoE rate hiking potential beyond what's been priced in nL2N2XB13B.
The risk-sensitive USD/JPY lost 0.5%, with deeper losses averted after prices bottomed at 127.03 on EBS by important support.
Its breakdown below the 30-DMA and kijun that caught last week's dive was also cut short by the trend-setting Nasdaq index finding support at last week's low and 50% Fibo of the entire 2020-22 pandemic range.
Nonetheless, USD/JPY's 14.5%, spec and Fed-led March-May bull run looks over and rebounds a chance for longs to lighten up and for prices to trend lower still nL2N2XB1AZ.
Ukraine war fallout fears may ease somewhat based on Russia's claim that half Gazprom's clients have opened accounts to buy gas in rubles ahead of the May 20 deadline nL2N2XB0MT.
There's also hope Chinese reopenings from zero-COVID lockdowns could ease pressure on the economy and supply chains.
Aussie's 1.4% gain got a boost from China hopes, higher commodity prices and a bullish miss from Australian jobs data, with full-time jobs surging while part-time jobs fell nAZN048OZA.
USD/CNH fell 0.87% in line with the dollar's broader yield spread led pullback.
Bitcoin and ether recovered most of Wednesday's slides, but are both still trying to build bases after April-May plunges tainted by unstable stablecoins and stocks.
Friday features Japan's core inflation forecast at 2.1% y/y from 0.8%, though not enough to end BOJ yield curve control, and UK retail sales forecast up 0.2% m/m.
There's no U.S. data to speak of, with the focus shifting toward next Friday's payrolls report.
For more click on FXBUZ