BUZZ-COMMENT-US recap: EUR/USD rebounds as US reports weigh on dollar before PCE

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- The dollar index fell 0.43%, erasing most of Wednesday's gains, as Treasury yields retreated after late Wednesday's pessimistic beige book with the help of more soft data today.

Thursday's dovish data included Q1 GDP and core PCE revisions, jobless claims and big trade deficit and pending homes sales misses, while investors were preparing for Friday's key April PCE data.

Individually, none of Thursday's U.S. data would have had much impact on U.S. yields or the dollar, but did so as a group after a big dollar rebound on Wednesday that peaked near key resistance versus the euro and yen.

EUR/USD rose 0.37%, aided by record low euro zone unemployment following other recent indications of improving economic sentiment, and despite the ECB signaling its first rate cut at next week's meeting.

Treasury yields from 2- to 10-year tenors fell 6-8bps, while bund yields were marginally higher. Treasury yields and Fed rate cut pricing, now at just 35bp by year-end, were unaffected by Federal Reserve Bank of New York President John Williams saying Thursday that policy is well positioned to lower inflation.

Williams also said inflation is still too high but should moderate in the second half of this year.

EUR/USD rebounded from key cloud and 200-day moving average supports, but needs to clear May's twin peaks and April's high near 1.09 to signal a broader advance.

Beyond Friday's U.S. PCE data are next week's ISMs, JOLTS and employment reports.

Friday also features euro zone CPI, which is unlikely to shift ECB rate cut expectations much unless uncomfortably above forecast.

Also out Friday is May Tokyo CPI, with the ex-fresh food index forecast at 1.9% year-on-year up from 1.6% in April, which was the lowest since March 2022. As well as an MoF report indicating how much yen intervention might have occurred.

USD/JPY slid 0.6% to its lowest in six sessions in line with falling Treasury-JGB yield spreads.

Thursday's drop followed Wednesday's rise toward this month's 157.99 high hit on May 1 that preceded that day's plunge to 153 on suspected Japanese intervention that began by Wednesday and Thursday's 157.715/68 highs.

Two- and 10-year Treasury-JGB yields spreads at 4.55% and 3.48% remain attractive for carry traders. How much additional demand there is given IMM net spec long positions aren't far from April's second-highest ever remains to be seen, but it would take a close below last week's 155 low to hint at a bigger uptrend correction.

Sterling rose 0.32%, with buyers found ahead of last week's lows and is more reliant on upcoming U.S. data due to a dearth of UK releases near-term, that in the wake above-forecast UK CPI on May 22.

The Swiss franc was a big winner, gaining 1.1% on the dollar 0.73% versus the euro after hawkish comments from SNB Chairman Thomas Jordan ahead of the June 4 April CPI release.

For more click on FXBUZ

(Editing by Burton Frierson
Randolph Donney is a Reuters market analyst. The views expressed are his own.)


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