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The dollar index rose 0.34% after the biggest drop in jobless claims in 20-months and Q1 GDP’s upward revision sent 2-year Treasury yields soaring 15bp, nearer to March’s pre-banking crisis peak.
Fed Chair Jerome Powell‘s latest reminder that most policymakers see two more rate hikes ahead helped.
Two-year bund yields rose 7bp and are approaching their March highs at 3.395% versus the 5.084% March peak in 2-year Treasury yields.
Euro zone June core inflation and U.S. May core PCE on Friday are forecast at 6.7% and 4.7% year-on-year, respectively, versus 6.9% and 4.7% previously.
But core PCE is at its highest since December, while euro zone core inflation, if on forecast, would be its lowest since December.
The difference is ECB rates at 3.5% remain well below inflation.
While the Fed’s 5.0-5.25% target is above core PCE.
And while that might favor less negative bund-Treasury yield spreads and a higher EUR/USD, euro zone and U.S. economic data have, on balance, diverged in the dollar’s favor.
The dollar index is threatening to close above key resistance at 103.30, which could signal the rest of May-June’s selloff will be erased.
EUR/USD lost 0.39%, unaided by mixed euro zone inflation readings and weighed down by deteriorating euro zone economic sentiment and its financial stability risk assessment remaining severe.
USD/JPY rose 0.25% on sharply higher Treasury-JGB yields spreads.
The overbought uptrend is near 145 and levels associated with last year’s MoF interventions that crushed USD/JPY.
BoJ Deputy Governor Ryozo Himino noted on Thursday that inflation increased more than expected and domestic demand may be part of the cause.
Tokyo CPI on Friday is being eyed as 1-month options insurance against a USD/JPY fall spiked.
Sterling fell 0.17% after nearing 50% of May-June’s surge and with UK households under duress.
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