The dollar index slipped 0.14% on Wednesday, dialing back the previous session's post-CPI gains after reports of BOJ rate-checking spooked the yen-selling market as USD/JPY approached the key 145 level.
The modest dip against other currencies -- especially the index's primary component the euro -- indicated that this was not yet a sea change in the dollar's months long rally driven by surging U.S. interest rates.
Front-end U.S. Eurodollar futures contracts slipped a touch, hinting at a higher Fed hike path.
Fed funds contracts indicate the terminal U.S. rate is now expected in April 2023 at 4.39%, which should keep the USD anchored by recent highs.
EUR/USD headed toward the U.S. close up 0.2% at 0.9987, with traders unwilling to move too far away from parity.
Front-end Euribor futures dipped as well, but the U.S. rate advantage over the euro zone tempered EUR gains.
USD/JPY was down 1% at 143.15 but 0.45 above its U.S. low at 142.56.
Intervention fears are keeping resistance at 145 intact, for now, but without a significant move below support at the Sept.
13 low of 141.60, traders are likely to revisit 24-year highs by 145 and test the BOJ’s intentions to defend the yen.
GBP/USD rallied after UK CPI dipped to 9.9%, a touch below the Reuters consensus forecast at 10.2%.
Traders positioned for higher inflation unwound shorts put on after Tuesday’s U.S. CPI.
With U.S.-UK rates expected to diverge into year-end, any rallies likely serve as a selling opportunity unless the BoE becomes more aggressive or the Fed indicates a pivot to easier policy.
Early U.S. equity gains gave way to selling into the close. Treasury yields were a touch higher but well off early-U.S. highs, and the 2s-10s spread was at -37bp.
Souring risk into the close dragged bitcoin lower by 1.5% to $19.8k, while ETH slid 2% to 1,571. Gold dropped 0.33% to $1,696 while silver managed to gain 1.2% to $19.55.
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