The dollar index fell on Thursday as unexpectedly weak U.S. pending home sales reminded investors of the economic pain the Fed expects to accompany its inflation-fighting efforts, but resilient stocks and Treasury yields limited the damage to the U.S. currency.
EUR/USD gained 0.3%, USD/JPY was flat and sterling advanced 0.2% as risk-on markets weighed on the safe-haven dollar and yen, aided by the notion that the height of Fed rate-hike pricing has passed and hopes that tight labor supplies will cushion the impact of soaring inflation and tighter financial conditions.
However, a sharp retreat in housing nL2N2XI155 and signs that surging costs are damping the post-pandemic rebound nL2N2XI0WF come as massive savings stockpiles -- fueled by COVID stimulus -- and real wages fall, heightening fears of recession by 2023.
EUR/USD gained 0.3%, not far from the day's 1.0729 EBS high, which was just shy of Wednesday and Tuesday's 1.07375/48 peaks nL2N2XI19B.
The rebound from 1.0663 lows was aided by slightly higher 2-year bund-Treasury yield spreads and risk-on flows.
If Friday's PCE and next week's U.S. jobs data fail to revive the uptrend in Fed rate hike pricing beyond the 50bp hikes seen in June and July, the rebound in EUR/USD and correction in the dollar index nL2N2XI1CE should persist.
Sterling was up 0.2%, not getting much traction off the UK tax and spending plans meant to mitigate the damage from soaring energy prices nL5N2XI0ZO.
Thursday's 1.2620 recovery high cleared the 30-day moving average, but was blocked by the daily kijun.
Further gains will need BoE-Fed rate hike expectations to move more in the pound's favor after the recent pullback in peak U.S. terminal rate expectations lifted 2-year gilt-Treasury yield spreads by 36bp nL2N2XI15H.
USD/JPY recovered to roughly unchanged from earlier 126.55 intraday lows, those lows coming after the mere mention of an eventual, smooth exit from loose money by BOJ Governor Haruhiko Kuroda gave the yen a brief boost nL2N2XI0B0.
But a rebound in Treasury yields and risk-on flows dimmed demand for the haven yen and got prices back up toward the 127.58 highs on EBS.
The rate and risk-sensitive pair now faces PCE and payrolls event risks that look more important after the recent run of weaker-than-forecast U.S. data nL2N2XI1GQ.
Surging oil prices weighed on USD/NOK, USD/CAD and USD/MXN, but aussie was flat and USD/CNH up 0.79% as COVID lockdown fears lingered despite efforts to reopen cities and to support the sagging economy nL2N2XF0OI.
Bitcoin and ether spiked lower, with ether getting closer to May's breakdown lows and recovering less than bitcoin.
Along with the core PCE update Friday, personal income and spending and Michigan consumer sentiment are also on tap.
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