June 23 (Reuters) – The dollar index rose 0.45% on Friday following much weaker-than-forecast euro zone and UK June PMIs that sent EUR/USD to new intraweek lows and fed broader risk-off flows into the safe-haven U.S. currency.
EUR/USD’s 0.56% fall led the rebound in the dollar index, which now faces a thicket of resistance at 103.30 that the U.S. PMI helped keep in sight due to a still reasonably strong and inflationary service sector that partly offset a manufacturing index in contraction.
An overarching concern is that central banks such as the BoE and ECB, with inflation much further above target than the Fed, face increasing risk they will trigger recessions with added rate hikes.
Another 50bp of ECB rate hikes is mostly priced in before year-end and gentle retreat in 2024. The BoE remains priced to hike another 121bp before an early 2024 peak and faster retreat.
The Fed’s pause last week, after 10 consecutive hikes, is seen leading to just one more 25bp hike before November, with rate cuts more likely into 2024.
The Fed’s initially ferocious, if delayed, 500bp of rate hikes leave it closer to the inflation fighting finish line, a view San Francisco Federal Reserve Bank President Mary Daly reiterated.
On the other end of the policy spectrum remains the BoJ’s negative policy rate, 50bp cap on 10-year JGB yields and ongoing QQE, regardless of Japan’s core-core CPI reported on Friday at 4.3% versus the 4.1% year-on-year April gain.
USD/JPY rose 0.42% after clearing key resistance at 142.50 this week, and is focused on resistance at 144.50-5.00 associated with last year’s MoF FX interventions.
Sterling lost 0.3% after recovering somewhat from its 1.2685 lows, with gilts-Treasury yield spreads up 13bp and risk-off flows subsiding from earlier extremes.
AUD and NOK fell 1.1% and 1.6% on derisking flows.
Next week’s focus will be on the ECB central bankers confab in Sintra, Portugal and half-year-end investment flows that might help the oversold yen.
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(Editing by Burton Frierson Randolph Donney is a Reuters market analyst. The views expressed are his own.)
((Randolph.donney@thomsonreuters.com))
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
