The dollar index gained 0.58% on Thursday as EUR/USD slumped in the wake of a hawkish ECB meeting nL1N2XW1BX that sent peripheral euro zone bond yields and spreads sharply higher in a wave of risk aversion about potential fragmentation.
The roughly 10bp rise in 10-year Bund-Treasury yield spreads that would normally be EUR/USD supportive was more than offset by the 18bp drop in 10-year bund-BTP yield spreads that came even though the ECB said it would address fragmentation risk if it arose.
The post-ECB surge in yields led Treasury yields higher and global equities lower, supporting the dollar against other currencies, including the yuan after reports parts Shanghai had resumed COVID lockdowns nL1N2XW01L.
Though it rallied near May's recovery highs in the initial minutes after the ECB announcement, EUR/USD eventually fell 0.79% to its lowest since May 23.
The current 1.0617 low is by the 38.2% Fibo of May's recovery.
The focus now turns to Friday's U.S. CPI and next Wednesday's FOMC meeting to gauge whether the Fed will continue hiking rates in 50bp increments beyond those expected this month and in July, and whether the terminal rate will exceed 3.5%.
USD/JPY was about flat after it sharply trimmed early losses from long profit-taking pre-ECB, as Treasury yields rebounded on sharp yield rises in Europe nL1N2XW1BS.
But Thursday saw the haven yen and dollar vying for dominance amid the day's derisking.
USD/JPY remains close to reaching its 2002 peak at 135.20 on EBS after already gaining more than 4% this month due to glaring Fed-BOJ policy divergence lifting Treasury-JGB yield spreads and a recovery in stocks dimming yen haven demand.
Sterling was off 0.25% and still in its recent trading range after post-ECB swings up then down.
It got some support from the spike down in EUR/GBP as implications of the ECB meeting sunk in.
U.S. CPI Friday, Fed and BoE on June 15 and 16 are looked to for some direction nL1N2XW1ED.
Aussie and CAD both lost about a percent on falling yields, risk-off flows and angst regarding Chinese lockdowns.
Bitcoin and ether were roughly unchanged.
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