Early dollar index gains turned into a 0.55% loss after JOLTS and consumer confidence misses sent Treasury yields down double-digits, with the Fed no longer seen likely to hike again before cutting rates in 2024.
That view on cuts could turn more aggressive if upcoming top-tier U.S. data fail to turn the tide.
The dollar index became overbought, as it neared May's, following Jackson Hole speeches from Fed Chair Jerome , ECB President Christine and BoJ Governor Kazuo that left EUR/USD hovering above crucial supports, while USD/JPY rose to new 2023 highs.
But Tuesday's U.S. data led EUR/USD to a 0.64% gain and well up from key supports.
Euro zone CPI reports on Wednesday and Thursday will better inform ECB expectations.
U.S. core PCE and jobless claims on Thursday and Friday's employment and ISM manufacturing reports will be scrutinized carefully after Tuesday's below-forecast data.
The ECB remains favored to hike rates by October, with a September raise now priced as coin-toss.
If euro zone inflation is higher than forecast it would support the rebound in .
USD/JPY fell 0.57%, as there was almost no compensatory drop in relatively stable JGB yields expected to offset the plunge in Treasury yields.
And Tuesday's tumble from fleeting new highs comes with bearish divergence , the extent of which depends on the rest of this week's U.S. data.
Sterling rose 0.44%, its gains hindered slightly by EUR/GBP clearing resistance.
Pound did get back above its 100-day moving average though.
Aussie rose 0.86% as tumbling Treasury yields sent stocks and other higher risk assets soaring.
It also received a boost from higher commodity prices as the U.S. dollar dove and from economic prospects after Chinese state banks cut existing mortgage rates.
Australian CPI will be a focus on Wednesday and as the RBA keeps the door open to more rate hikes.
USD/CNH fell 0.15%, but remains in its recent range, with a fair amount of skepticism that structural issues weighing on the Chinese economy will be reversed soon.
Wednesday's data features German CPI, ADP and pending U.S. home sales, but Thursday and Friday's U.S. data is far more important.
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