Money returned from whence it came on Thursday a day after the Fed signaled the start of policy normalization planning nL2N2NX1EJ, sending the dollar and the yen sharply higher as investors unwound reflation trades, to the benefit of the two main risk and carry-funding currencies.
And in an odd twist, long-term Treasury yields plunged, led by 30-year bonds falling more than 15bp and well below June's prior lows as the prospect of Fed tightening made dollar-denominated duration attractive due both to the U.S. currency's advance and diminished inflation fears.
EUR/USD fell 0.63%, hitting two-month lows, despite 10-year Bund-Treasury yield spreads flying roughly 12bp higher to their highest since February, when EUR/USD was closer to 1.21, versus Thursday's 1.1890 low.
But 5-year yield spreads remained near late April lows, though off Wednesday's trough.
Since the Fed, EUR/USD imploded below all the Fibos of the 1.1704-1.2266 March-May uptrend except the 76.4% at 1.18365 on EBS, near the 161.8% Fibo off the 1.2266-104 May 15 to June 4 drop.
The weekly cloud top is at 1.18335.
ECB Chief Economist Philip Lane cooled expectations for September's meeting nL5N2NZ1J4, hurting the euro further.
ECB member Jens Weidmann later lived up to his hawkish reputation nL5N2NZ4UO but did little to slow EUR/USD's fall.
Dollar gains against just about every other currency but the yen weren't dissuaded by the unexpected increase in U.S. weekly jobless claims nAPN06Z7QK.
USD/JPY fell 0.45% after its 110.825 post-Fed peak ran into sellers ahead of this year's 110.97 high from January.
This pair's higher positive correlation to longer-term Treasury yields, due to limited JGB yield movements, and broader repatriation flows produced a 110.17 low, right at Tuesday's high.
Ten-year Treasury-JGB yield spreads fell to new lows for the week, more than erasing Wednesday's rebound after the Fed.
But 5-year spreads were only modestly below Thursday's highest since early April.
The tenkan and 50% Fibo of this week's rise offer more support at 110.01 heading into Friday's BOJ meeting.
The BOJ will likely maintain current policy, as the government takes a chance on reducing pandemic restrictions ahead of July's Olympics.
Sterling lost 0.45%, reaching its lowest since May 7.
The 1.38955 low managed to hold above the 61.8% Fibo of the April-June advance at 1.3891, a break of which would put in play the 76.4% Fibo and May's low at 1.3806/03.
This week's tumble raises the risk from this year's 1.4240/50 double-top.
AUD/USD fell 0.74% amid unwinding of high-beta currency longs despite an excellent May Australia jobs report nL2N2NZ02Z.
The 0.7540 low nearly reached April's major low at 0.75325.
The drop was hastened by tumbling commodity prices in response to the U.S. dollar's post-Fed surge.
USD/CNH gained 0.25%, rising to its highest since May 7 and by its 100-day moving average at 6.4679, with Thursday's range the first wholly above the previous key support at 6.4000 since May 24, as the U.S. FCC voted to advance a plan to stop approving equipment from Chinese companies deemed to pose national security risks nL2N2NZ1LQ.
There's a drought of top-tier data in coming sessions, with focus likely to shift to June PMIs later next week and the return of Fed speakers.
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