The dollar index rose in a whipsaw session on Tuesday, recovering from losses that followed below-forecast core CPI and real earnings data -- which tempered Fed rate-hike expectations -- as EUR/USD's rally in the wake of the report fizzled.
Traders looked beyond the headline number, which came in a touch above forecast at 8.5% versus the Reuters consensus projection of 8.4%, to focus on the slight miss in core CPI and surprisingly large fall in real weekly earnings of 1.1%.
rates across the curve moved lower and the curve steepened as fixed income traders pushed yields lower, weighing on the dollar.
EUR/USD put in a high at 1.0905 after the data but failed to sustain those levels, slipping to a session low 1.0821 into the U.S. close, just above the March 7 2022 low at 1.0806.
EUR/USD was hit hardest of the major currencies as traders dialed back ECB hike expectations, with front-end Euribor futures are priced 6-8 basis points higher -- lower rates -- from December 2022 into 2023.
USD/JPY slid immediately after the lukewarm CPI data, putting in a low at 124.76, before rallying into the NorAm close to 125.27, down 0.08% on the day.
Recent USD/JPY gains have been predicated on diverging Fed-BoJ rate differentials.
The tepid CPI and earnings data diminished the primary driver of recent USD/JPY gains and may hint that a top has been put in by the 2022 high of 125.77, struck on Monday, a touch below the 2015 peak at 125.86.
USD/JPY finds support at Tuesday’s low by 124.76, then the 10-DMA by 123.52.
A close below 123.53, the 50% Fib of the 121.28-125.77 March-April rise, puts 21-DMA support by 122.03 in sharper focus.
GBP/USD traded in a relatively tight range.
The pound once again found support just below 1.30 ahead of its 2022 low at 1.2982.
Despite the post-CPI USD selloff the pound was unable to rise above 10-DMA resistance by 1.3080.
Sterling traders are waiting for more data to see if the Fed shifts to a more growth-centric rate tack, akin to the BoE, as inflation may have reached its peak.
AUD/USD rallied to 0.7493 after CPI, slipping to 0.7465 into the close, but remains well bid as futures markets see a 56% chance of the RBA hiking rates at the May 3 MPC meeting.
AUD/USD has moved off recent trend highs amid increasingly hawkish Fed tones, but the U.S. CPI and earnings surprise may see Australia and U.S.
rates converge at a faster rate helping, helping to lift the aussie.
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