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Feb 01 - 05:55 PM

EUR/USD - COMMENT-US Recap: EUR/USD Rebounds On Mostly Soft US Data, Bank Angst Pre-NFP

By Randolph Donney  —  Feb 01 - 01:45 PM

The dollar index's post-Fed bounce reversed on Thursday as U.S. data indicated more disinflation and further unease in the regional banking sector, which weighed on Treasury yields and boosted demand for the haven yen.

Treasury yields resumed their recent retreat, encouraged by a surge in Challenger layoffs from 34.8k to 82.3k, above-forecast jobless claims and well below forecast Q4 unit labor costs.

That followed below-forecast ADP and softening employment cost data, and many of the economic reports so far this week appear broadly contrary to Fed Chair Jerome Powell's attempt on Wednesday to quash market expectations of a March rate cut.

Treasury yields received some support from January's manufacturing ISM, but another drop in U.S. regional bank stocks indexes briefly took them -- and the dollar -- to session lows before stabilizing.

Still, futures have followed Powell's lead and made May the most likely timing for the first Fed rate cut, but the market continued to price in roughly six 25bp rate cuts by year-end.

Other than against the yen, the dollar's slide hasn't yet reached Wednesday's lows, with markets still bracing for the U.S. employment report on Friday and ISM services on Tuesday, given manufacturing only accounts for 10% of GDP.

EUR/USD recovered for a 0.48% gain from its earlier break below the 50% Fibo of the October-December advance that had held this week's lows, finding support at the 100-day moving average and Thursday's fleeting 1.0780 low.

USD/JPY fell 0.4%, but was off its 145.90 midday lows.

Societe Generale forecast that the BoJ would end its negative rates policy at March's meeting, following slightly more hawkish talk in the summary of its last meeting.
However, the market is still favors an April rate hike.
Either way, few see rates rising much above zero.

Sterling rose 0.4% after a split MPC vote that left rates unchanged at Thursday's meeting, as expected.

For more click on FXBUZ

Source:
Refinitiv IFR Research/Market Commentary

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