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Nov 10 - 04:55 PM

EUR/USD - COMMENT-US Recap: EUR/USD Surges After U.S. CPI Brings Big Sigh Of Relief

By Randolph Donney  —  Nov 10 - 01:45 PM

The dollar plunged on Thursday after below-forecast U.S. CPI nL1N3261EP triggered a sharp slide in Treasury yields and peak Fed hike pricing and a major rebound in risk-taking that left safe havens out of favor.

The dollar index tumbled roughly 1.7%, with the U.S. currency's biggest losses among the majors a 2.9% dive versus the yen, as BoJ-contained JGB yields were unaffected by price action in Treasury yields.

EUR/USD rose 1.4%, almost reaching September's 1.0198 EBS high, though the broader dollar retreat slowed after the London close and as Fed speakers reminded markets that they still intended to tighten further before backing off nS0N30D04DnS0N31C04U.

Core inflation, now at 6.3% year-on-year, remains more than three times the Fed's 2% target, with the labor market still tight by historical standards, if slowly beginning to loosen.

The next data focus will be Wednesday's U.S. retail sales, export/import prices, industrial production and NAHB.

Two-year Treasury yields plunged 30bp, their largest daily drop since the Russian invasion of Ukraine shocked markets.
The implied fed funds terminal rate dropped from well above 5% to roughly 4.85%, with a 45bp drop between the May-June peak and year-end.

USD/JPY's dive could be just round one of a broader retracement of the enormous Fed-led pandemic rally unless future U.S. data suggest inflation will be more tenacious than now expected nL1N3261ZP.

Sterling rose 2.6%, its biggest advance since March 2020 in the throes of the pandemic, with the risk-sensitive pound trading above October's mini-budget rebound highs and the 100-day moving average for the first time since February.

And despite rising Chinese COVID cases spurring more restrictions nL1N3260Y3, USD/CNH fell 1.2% amid Thursday's crush of risk-taking.

For more click on FXBUZ

Refinitiv IFR Research/Market Commentary


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