The dollar index surrendered earlier gains on Wednesday, after the Fed's statement announcing a widely anticipated decision to taper bond purchases fell short or expectations that it would express more concerns about rising inflation.
The statement announced a $15bln per month tapering nL1N2RT12TnW1N2QN00E and blamed supply constraints for accelerating price growth.
It also said that progress on vaccinations and an easing of supply constraints would help reduce inflation.
Despite the knee jerk drop in Treasury yields and the dollar after the statement, both rebounded and pricing in of Fed rate hikes in H2 2022 made fresh highs.
The dollar index remained below this and last week's rebound highs, in part as the market awaits more jobs data Thursday and Friday, given the mostly as-expected Fed.
Treasury yields and the dollar were boosted early by ADP at 571,00 versus 400,000 forecast nL1N2RT1QX and the record high ISM services index with its highly inflationary internals nN9N2Q3004.
ADP has overestimated payrolls numbers in recent months, so some caution is warranted, while ISM's October services employment index dropped to 51.6 from 53.
European Central Bank President Lagarde said the bank was "very unlikely" to raise rates in 2022 nL8N2RU3AD, a view echoed by ECB member Francois Villeroy de Galhau nFWN2RU1YK.
Money markets trimmed expected H2 2022 ECB rate hikes back to roughly one 10bp rise from two earlier this week.
EUR/USD was up 0.19%, but struggled to hold above the 10- and 30-day moving averages.
More consolidation above October's 1.1522 low and 1.1500 defense is likely before Friday's U.S. jobs report.
GBP/USD was up 0.41%, boosted after the Times shadow MPC recommended a rate hike on Thursday and UK services were revised higher from the flash reading nZRN0038KK.
That lifted the odds of a 15bp rate hike Thursday to 66% nL1N2RU1E4, but down to 63% after the fairly benign Fed.
USD/JPY was up 0.10% and sporting a Doji candle centered around 114 and close to the tenkan at 113.85, with upcoming options expiries also clustered in the 114 vicinity.
A late surge in S&Ps went little noticed as USD/JPY correlation to the index has gone flat recently, with the focus on whether the Fed and U.S. data will revive the uptrend in Treasury yields and the dollar nL1N2RU1LD.
Thursday features jobless claims falling to new pandemic lows and Challenger layoffs near record lows, further illustrating the tightness in labor supply that in Q3 produced the highest rise on wages and salaries since 1984.
Trade and productivity data are also on tap.
Friday's employment report is the main macro benchmark, with payrolls forecast at 450,000 from 194,000 in September and the jobless rate down 0.1% to 4.7%.
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