The dollar halted its recent recovery on Wednesday, losing ground after sellers emerged near the starting point of last week's plunge as markets attempt to reconcile signs of stagflation and hawkish Fed expectations ahead of next week's highly anticipated policy meeting nL1N2TZ1GY.
EUR/USD was supported by a pullback in Treasury yields from fresh two-year highs and 10-year Bund yields rising above zero for the first time since May 2019.
Speculation that the Fed would hike rates more aggressively this year than previously priced into the yield curve fueled the dollar's recovery and EUR/USD's slide since Friday.
But recent data disappointments, such as the fall in December U.S. retail sales, raise the risk that next week's Fed statement will not feature excessively hawkish guidance.
EUR/USD was up 0.2% as it consolidated the preceding week's wild swings near converging short to medium-term moving averages and above last Tuesday's lows at 1.1313, which were struck before the volatility began nL1N2TZ1HR.
Sterling was up 0.22%, benefiting from above-forecast and 30-year inflation high nL8N2TZ1E1 that bolsters BoE rate hike expectations, particularly after December's record jobs creation nL8N2TY13U.
The BoE is still expected to slightly outdo the Fed with rate hikes this year.
If so, and if the 200-DMA hurdle at 1.3735 that capped January's highs is closed above, 2021's major tops at 1.4240/50 could be retested nL1N2TZ1EI.
Cable has worked off much of last week's heavily overbought price pressure, pressures fueled by spec shorts being squeezed out over the last three weeks.
USD/JPY was down 0.3%, dropping away from the falling 10-DMA that capped Tuesday and Wednesday's highs, guided by falling Treasury-JGB yield spreads.
Though last week's dive held key Fibo props, the recovery is in doubt while below the 10-DMA and the converged daily tenkan and kijun at 114.83/76/75 on EBS.
The 114 level looks pivotal on a closing basis.
The Australian dollar was up 0.6%, getting extra help from rising minerals prices and perhaps on China's efforts to support its slowing economy nL1N2TY0CB and struggling property developers nL1N2TZ0KD.
High-beta currencies breathed a sigh of relief as retreating Treasury yields reduced risk aversion.
Bitcoin and ether continued to languish fairly close to January's multi-month lows.
Thursday features jobless claims, January Philly Fed data -- following a shock Empire drop nN9N2Q301X -- and existing home sales.
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