June 16 (Reuters) – The dollar index recovered slightly from a five-week low with the help of hawkish Fed speakers and position squaring as markets took a breather following Fed and ECB meetings and before a holiday weekend, with heavy yen losses a factor after the BoJ retained its full-tilt easing policies.
The accommodative BoJ remains an outlier among most major central banks.
A rise in Treasury yields followed Thursday’s post-Fed and ECB meeting slide, supported by Friday’s fairly hawkish Fed speakers, while an 8bp rise in 2-year yields produced a deeper inversion of the 2-10-year yield curve to just 10bp from March’s pre-banking crisis trough, its widest since 1981.
Michigan consumer sentiment beat with its four-month high, as 1-year inflation expectations slid to 3.3% from 4.2%.
EUR/USD’s rise to its 1.09705 Friday high on EBS ran into the daily cloud top, which was enough in the midst of 2-year bund-Treasury yields spreads retreating 7bp to prompt a pullback and modest loss on the day, but only after a 2% rise for the week.
The market still prices in more ECB hikes than Fed tightening from here with euro zone inflation much higher than in the U.S. That may allow the ECB to win the policy jawboning battle with the Fed and support a full retracement to 2023’s 1.1096 peak.
Post-BoJ yen selling sent USD/JPY to a 1.1% gain, EUR/JPY up 1% to 23-year highs and GBP/JPY up 1.5% to its highest since 2016.
The BoJ clung to its negative interest rate, yield curve control and equities and REITs buying policies, regardless of inflation above its 2% target for a year.
USD/JPY cleared this year’s rising channel top at 141.50, with the next key resistance at 142.50, the 61.8% Fibo of 2022-23’s drop. Above there Japan’s MoF, already in intervention warning mode, may become increasingly likely to take action as the market chips away at the last of the yen gains that followed its 2022 currency support campaign.
Sterling added 0.4%, with this week’s 2.2% surge beyond its downtrend line across 2021/22/23 peaks, with the BoE priced to hike 140bp, overtaking the expected Fed hike peak.
A light U.S. data calendar next week, with Fed Chair Jerome Powell’s testimony on Wednesday and the BoE meeting Thursday eyed.
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(Editing by Burton Frierson Randolph Donney is a Reuters market analyst. The views expressed are his own.)
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