Oct 16 (Reuters) – The dollar index fell 0.37% in a broad pullback from widespread derisking flows related to the Israel-Hamas conflict that supported it late last week.
EUR/USD rose 0.4% despite bund-Treasury yields spreads slipping slightly, as demand for the haven dollar waned. After eleven consecutive weeks of losses, EUR/USD was already looking oversold, as the Fed is now seen done hiking rates.
Sterling rose 0.55%, boosted by risk-on flows and higher gilts-Treasury yields spreads. BoE Chief Economist Huw Pill on Monday warned against declaring premature inflation victory.
Sterling traders are bracing for UK inflation data on Wednesday that could reaffirm the BoE’s position as the only one of the big-three central banks that markets expect to hike rates again. A UK rate cut is not foreseen until late 2024.
USD/JPY was flat and continued to linger below the October 2023 peak at 150.165, ahead of 2022’s 32-year high at 151.94. Gains slowed with Treasury-JGB yields spreads below their recent highs, though high enough to keep carry traders buying dips.
Strong U.S. retail sales and other data fostering higher Fed rate expectations might be the best way to secure a 150 breakout toward 151.94 and major resistance ahead of it. Lack of Japanese FX intervention would also be a key puzzle piece.
Aussie and Kiwi rose roughly 0.7% as risk appetite recovered. The Polish zloty rose 2.2% on weekend election results seen leading to better relations within the EU.
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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))
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