Dollar extended recent losses on Tuesday, propelling EUR/USD 0.64% higher toward February's 1.22435 high, as doubts about Fed policy tightening and ECB balance sheet expansion kept euro zone government debt yields rising versus Treasuries.
The euro zone's accelerating vaccinations and brisk demand for exports have helped EUR/USD.
While Germany's constitutional court rejected a complaint against the ECB's flagship bond-buying scheme nL5N2N51ZK, purchases have been underwhelming since it promised to bolster them nIfp39ydhz, with core and peripheral yields continuing their rapid rise and 10-year BTP yields doubling since March 25.
In contrast, Treasury yields remain well below March highs, with housing starts nAPN06FFDH adding to a string of disappointing data while the Fed remains determined to maintain current accommodation until substantial progress is made toward its inflation and employment goals while writing off higher inflation as transitory.
Treasury yields dipped on the housing starts but recovered after a strong New York Fed Business Leaders Survey and ongoing concerns about the Fed falling behind the inflation curves.
Sterling was 0.4% higher, nearing February's nearly 3-year high of 1.4240, helped by forecast-beating UK employment data nL5N2N518O and economic reopening nL8N2MX153.
Slightly overbought sterling faces long-term resistance not far from this year's peak, creating risk of a setback if it fails to clear the post-Brexit referendum high at 1.4377 soon.
Bank of England Governor Andrew Bailey said on Tuesday he sees no clear sign input prices are raising inflation nL9N2LG008, likely keeping tightening expectations in check.
USD/JPY pierced its up trendline from January yet again, at 108.88, but follow-through was limited to 108.83 and prices are by the trendline ahead of the close.
A close below is key to signaling a bigger drop, as the trendline has been breached intraday several times since mid-April.
A close below the trendline would put in play May and perhaps April lows at 108.34/7.48.
Higher U.S. inflation and a lack of Fed rate hike pricing until 2023 leaves real Treasury yields negative and the dollar under pressure, particularly versus ultra-low Japanese inflation and positive real JGB yields.
AUD/USD was up 0.5%, with the day's 0.7813 high close to where prices broke lower in response to last Wednesday's U.S. CPI spike and by April's highs.
The May 10 post-payrolls miss peak at 0.7891 is now key resistance, particularly with RBA minutes revealing a very aggressive wage growth target that would likely require extremely easy policy for a long time nRUAIGEHAP.
Bitcoin and ether consolidated recent slides from record highs.
Wednesday features FOMC minutes, though they will reflect opinions before wild deviations in jobs, retail sales and inflation data, followed by Thursday's weekly jobless claims and Friday's global PMIs.
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