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Oct 13 - 04:55 PM

EUR/USD - COMMENT-US Recap: EUR/USD Rises As Dollar's Post-CPI Surge Fizzles

By Randolph Donney  —  Oct 13 - 01:50 PM

The dollar index tumbled on Thursday after a sharp rally on above-forecast U.S. CPI nL1N31C21B gave way to a stunning reversal in the face of a strong equities rebound.

Leading the charge against the dollar, sterling vaulted more than 2% higher on reports that the UK government was considering changes to the budget plans that had catalyzed the pound's September slide.

Tumbling gilts yields nL8N31E4F5 took the edge off higher Fed rate hike pricing and trimmed about a third of the roughly 30bp CPI-induced surge in 2-year Treasury yields, while the neck-breaking reversal of early stock market losses into strong gains further weakened the dollar's safe-haven allure.

EUR/USD traded a 0.9632-0.9806 range on EBS and was up 1% after hitting its lowest since Sept.
29 and its highest since last Friday.

Wednesday's gilts yields dive on much stronger usage of the BoE's emergency bond buying facility -- due to end on Friday -- left sterling supported coming into the session.

Two and 10-year gilts yields tumbled nearly 30bp Thursday on hopes fiscal stimulus will not undermine the BoE's ability to fight inflation, which currently features 200bp of rate hikes before year-end.

USD/JPY eked out a new 32-year high at 147.665 on EBS, but that was seen as a failed breakout above 1998's 147.64 peak and just cause for flush longs to book some profits.

The focus now shifts to Friday's U.S. retail sales, which above-forecast CPI ought to nominally support.
The Fed's Nov.
1-2 meeting is seen producing a fourth consecutive 75bp hike.

Two-year and 10-year Treasury yields were up 12.4bp and flat respectively after coming off post-CPI extremes, further inverting the 2-10-year yield curve to -50bp.

For more click on FXBUZ

Refinitiv IFR Research/Market Commentary


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