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Apr 08 - 04:55 PM

EUR/USD - COMMENT-US Recap: EUR/USD Up, Bund, Treasury Yields Rise Before Event Risks

By Randolph Donney  —  Apr 08 - 02:35 PM

The dollar index fell 0.16% in a mild pullback from Friday's rise on hot U.S. jobs data and ahead of key U.S. CPI on Wednesday and the ECB meeting on Thursday.

Friday's U.S. equity market advance on the strong employment data spilled over into better risk acceptance elsewhere to begin the new week, weighing slightly on so-called haven currencies such as the dollar, yen and Swiss franc.

Earlier dollar gains Monday tied to Treasury yields breaking out above key resistance were trimmed by those yields slipping back to their breakout points before firming.

EUR/USD rose 0.2%, aided by 2-year bund yields rising about as much as Treasury yields and after German industrial production rebounded more than forecast and euro zone March investor morale was less negative than expected.
That in the absence of any major U.S. economic data Monday and as sharp reductions in expected Fed rate cuts this year face CPI and PPI tests this week.

Between the above-forecast February U.S. CPI and PPI and Friday's big payrolls beats, the market went from fully pricing in a June Fed rate, and at least three cuts by year-end, to making a June cut a coin toss and two rate cuts this year about as likely as the three from the Fed's last dot plots.

Fed speakers have recently veered toward being more cautious about cutting rates this year.
The less dovish shift fit with today's Federal Reserve Bank of New York's March Survey of Consumer Expectations showing expected year ahead inflation unchanged at 3% and three-year at 2.9% versus 2.7% in February.

USD/JPY rose 0.06% and remained pinned in a tight 151.63-945 range and below the key 152 level for a 14th straight day, playing chicken with Japanese officials who have repeatedly threatened to take action to avert an abrupt yen fall to new 34-year lows.

Two- and 10-year Treasury-JGB yields spreads are right by 2024's highs following Friday's strong jobs report.
That as the BoJ's exit from negative rates isn't seen starting a meaningful rate hiking cycle because Japan's domestic economy remains weak, despite record union wage increases, and as the country's enormous government debt would become untenable amid a major rise in JGB yields.

Sterling rose 0.19% amid better risk acceptance and despite 2-year Gilts-Treasury yields spreads falling to their lowest in almost a year.
There is little difference between Fed and BoE rate cut pricing for 2024 at this point.
That pricing looks odd given how much higher UK inflation remains compared to U.S. inflation thus far.

For more click on FXBUZ

Refinitiv IFR Research/Market Commentary


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