The dollar index fell on Friday, reversing initial gains that followed unexpectedly strong non-farm payrolls and produced a fleeting new 2021 high of 94.63 as markets concluded that the data would not accelerate the pace of Fed tapering or hasten rate hikes.
Traders appear to be taking the Fed at its word that more data is needed on the nature of current inflation before rate liftoff begins, similar to their view of the BoE.
Treasury yields moved lower, adding to the dollar's weakness as perceptions that U.S. rate hikes remain a story for H2 2022 gave fixed income traders the green light to reach for yield.
But Friday's dollar index retreat from highs may be short-lived as the U.S. recovery remains more robust than most developed economies.
The shallow dip in the dollar index to 94.27 is a mere 36 pips from the 2021 high and subsequent upbeat employment data may prod the Fed to speed up its timetable for asset taper and rate liftoff.
EUR/USD hovered near flat heading toward the close, 10 pips off session highs, though its potential to rally remained tempered by ECB President Christine Lagarde's comments on Wednesday that European Central Bank is very unlikely to raise interest rates next year despite market bets for a move as soon as next October nF9N2PW026.
USD/JPY outpaced other currency pairs showing dollar weakness since the steady global rate view relieves pressure on the low-yielding yen.
Tightening U.S.-Japan bond differentials are ushering in an unwind of short yen positions, which could pick up steam on a move below 112.76 the 50% Fib of the September-October rise from 110.82 to 114.70.
Below 112.76, likely targets are the 55-DMA by 111.62 and the Oct.
4 low of 110.82.
GBP/USD found support ahead of the 2021 low of 1.3412 it hit on Sept.
Profit-taking on Thursday's large drop after the BoE’s surprise rate hold gave a reprieve to trapped GBP longs, though falling BoE hike expectations for December put the UK rate hike path more in line with the Fed and is likely to lead to further sterling weakness versus the USD and EUR.
AUD/USD was ending U.S. trade near flat, with this week's dovish Fed and BoE rate expectations prodding recent AUD bulls to lighten positions.
Aussie support was holding by its 55-DMA by 0.7356.
Amid recent volatility BTC has remained tethered to its 10-DMA by $61.4k, trading in a tight $60k-$64k range.
Recent global central bank uncertainty on inflation has been providing support for BTC.
Gold firmed, rising 1.23%, as the delay in global rate liftoff favors the low-yielding metal.
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