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Dec 21 - 03:55 PM

GBP/USD - COMMENT-US Recap: Dollar Firms, Sterling Slides, Euro Fades As BoJ Effect Ebbs

By Randolph Donney  —  Dec 21 - 02:00 PM

The dollar index rose 0.25% on Wednesday led by USD/JPY's 0.42% rebound from BoJ-inspired implosion and sterling's 0.86% drop as a wave of UK worker strikes and record British public debt nL8N33B12L weighed on a currency already hamstrung by the BoE's struggle to catch up to the inflation curve.

The Treasury yield curve steepened again, reducing the 2-10-year curve inversion by 4bp to its tightest since Nov.
14 at -54.3bp and stocks rallied.

U.S.
existing home sales plunged 7.7% to a 2-1/2 year low nL1N33B14D.
Median prices fell 2.1% but were still up 3.5% year-on-year and 37% from pre-pandemic levels due to extremely tight inventories.

Partly offsetting that was an unexpected rebound in December consumer confidence to 108.3 from 101.4, largely on lower inflation expectations nAQN2D92LE.

But Wednesday's price action was mostly pre-holiday and year-end consolidation of the dollar's slide since September, sterling's rebound from September's record low and EUR/USD's hefty 12.7% recovery from its 20-year September lows.

And, of course, consolidation of USD/JPY's biggest one-day drop in 24 years on Tuesday after the BoJ took the first step toward exiting its yield curve control policy nL4N33A3NK.
That after Tuesday's 130.58 EBS low held above August's key 130.40 low and the lowest price since the Fed began its series of four 75bp rate hikes.

USD/JPY's 151.94-130.58 tumble far outpaced drops in Treasury-JGB yield spreads from their Q4 peaks.
A recovery from Tuesday's 130.58 trough is, however, expected to be short-lived and followed by an eventual slide to supports at 126.56/37 nL1N33B16Y.

EUR/USD is threatening its first close below the 10-day moving average, last at 1.0597, since November as it corrects from December's overbought 1.0737 EBS peak just below the 61.8% Fibo of 2022's fall.

USD/CNH rose 0.46% amid fear China's abrupt exit from zero-COVID policies will trigger a serious health crisis over the next few months nL8N33B04F.

Focus is on Friday's core PCE and University of Michigan data.

For more click on FXBUZ

Source:
Refinitiv IFR Research/Market Commentary

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