Oct 19 (Reuters) – The dollar retreated alongside short-term U.S. yields as Fed Chair Jerome Powell’s speech on Thursday suggested a bias toward not raising rates again unless pushed to do so by data showing that inflation is no longer trending lower.
EUR/USD rose 0.46%, extending earlier gains that came despite higher bund-Treasury yields spreads.
Higher Treasury yields and rapid disinversion of the 2-10-year yield curve to its tightest since Sep 2022 may be perceived as a warning for the U.S. economy longer-term as interest rate sensitive sectors of the U.S. economy are showing strains.
October’s high and 23.6% of the July-October plunge at 1.0640-43 look pivotal above.
USD/JPY’s seemingly quixotic quest to retake 150, come what may with potential MoF yen buying, faltered on Thursday at 149.95, then turned down 0.05% after the broad dollar pullback following Powell’s speech.
But the pullback was modest as the retreat in 2-year Treasury yields and spreads above JGB yields was partly offset by a rise in 10-year yield spreads. Spreads in general remain very attractive due to the glacial pace of BoJ policy normalization.
Sterling rose 0.07%, but off earlier highs from 2-year gilts-Treasury yields spreads as short-term Treasury yields fell on Powell’s comments. But prices are much farther from recent recovery highs and other key resistance than EUR/USD. EUR/GBP advanced above its 200-DMA for the first time since May.
The dollar index fell 0.34%, largely due to EUR/USD’s rise, but found support at the kijun at 1.0594 and would need to close below the 30-day moving average, now at 105.87, and October’s 105.53 low by a 105.50 Fibo, to signal a broader retreat.
Japan’s CPI and UK retail sales on Friday are the last two major data releases this week.
Risk acceptance, oil prices — and crude-related currencies — will also be driven by the Israel-Hama conflict and broader ramifications, as Israel’s defense minister said troops will soon be inside Gaza.
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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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