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Sep 19 - 03:55 PM

EUR/USD - COMMENT-US Recap: EUR/USD's Bounce Fades As Fed Looms

By Randolph Donney  —  Sep 19 - 02:20 PM

The dollar index was little changed, up from earlier lows, ahead of Wednesday's Fed events, with the possibility of guidance keeping one more hike this year a reasonable risk and dampening expectations of cuts before the second half of 2024.

The index has fallen back from last week's 6-month highs by major resistance, mostly to consolidate its nearly 6% rally just since July's lows.

EUR/USD had been recovering after probing May's 1.0635 major swing low last week -- without closing below it -- but ran into sellers at Tuesday's 1.0718 high on EBS.

It was last trading flat as the focus shifted back to the Fed on Wednesday perhaps sounding more hawkish than the ECB did after its rate hike last week came with the comment that rates were now restrictive enough to eventually bring euro zone inflation down to the 2% target.

Final euro zone August inflation was 0.1% below forecast, but core inflation remained at 6.2%, more than triple the ECB's target, while overall inflation slipped to 5.2% from 5.3%.

USD/JPY rose 0.17% on the back of a 2-3bp rise in Treasury yields, with 2-year yields just below July's 5.12% peak, its highest since 2006.

Ten-year yields brushed up against August's peak, the highest level since 2007.
That has Treasury-JGB yields spreads close to their trend highs.

USD/JPY could break out, after 11 days stuck just under 148, toward 150 if the Fed is hawkish enough and if the BoJ on Friday defers policy normalization as expected.

Sterling rose 0.06%, though off intraday highs amid the broader dollar rebound and as 2-year gilts-Treasury yield spreads fell deeper into negative territory amid concerns the BoE's expected rate hike on Thursday may be its last, despite UK overall and core inflation rates still at a daunting 6.8% and 6.9%, respectively.

Wednesday's CPI releases are forecast to show overall and core rates at 7.0% and 6.8%.

The Australian and Canadian dollars both rose 0.3%, the latter receiving an added boost from above-forecast Canadian inflation, with both benefiting from the recent rise in energy prices and some signs China's economy is stabilizing.

USD/CNH rose 0.15% to its highest in five days, but was unable to clear the 10-day moving average.

For more click on FXBUZ

Refinitiv IFR Research/Market Commentary


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