The dollar index rose to 7-day highs on Friday but moderated its rally as soothing words from the Fed eventually tempered a rise in yields brought on by its decision to ditch an exemption to leverage rules pertaining to Treasuries.
Treasury yields initially rose, dragging the dollar with them, when the Fed said it would allow nL1N2LH0ZH a temporary pandemic regulatory break in the capital rule known as the "supplementary leverage ratio" to expire this month.
But the reaction receded as markets digested the Fed's comment that it may need to review the SLR nL1N2LH0YZ "to prevent strains from developing that could both constrain economic growth and undermine financial stability."
The net result left 2-year and 10-year Treasury yields essentially flat by late U.S. trade, down from marginal gains after the announcement, allowing EUR/USD to rebound from a low of 1.1874 on EBS to above 1.1910, down less than 0.1% on the day.
The Fed has tried to contain tightening and tapering expectations even as it projected a powerful economic rebound earlier this week and an increase in inflation that it expects to be temporary, though the market is hedging against the risk that the U.S. central bank is wrong about accelerating price pressures.
The Fed's SLR decision was also shrouded in potential political considerations nL1N2LD1G0, which could hurt the dollar if these concerns proved material.
For a second week, EUR/USD failed to overcome the 38.2% Fibo of the January-February drop.
With the EU having fallen further behind the U.S. in vaccinations after pausing nL4N2KI0XB, the burden of proof remains on EUR/USD bulls to prevent a break below nearby 200-day moving average support and this month's lows nL1N2LH16K.
Sterling proved more susceptible to the dollar's intraday gains due to increasing anxiety regarding the post-Brexit situation in Northern Ireland nS8N2KO00F.
Cable also came off its lows as Treasury yields retreated from their SLR news highs, but was still down 0.3%, with today's 1.3830 low pretty close to the pivotal up trend-line from October and the 55-day moving average at 1.3804/799.
USD/JPY was little changed after the BOJ's policy tweaks nL1N2LH025, which were largely expected and too limited to have much impact on the yen.
USD/JPY continued to work off overbought conditions from exceptionally strong gains this year nL1N2LH19N.
The consolidation has support at 108.28/23 and higher chart targets at 109.56/85 and 112.10/23.
A surprise 1.1% drop in Australian Feb retail sales nS9N2J202Q kept AUD/USD restrained.
Next week is very light on important U.S. data, so the focus will remain on Treasury yields and Fed speeches -- including three appearances by Chair Jerome Powell.
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