USD/JPY-Post-PPI slide holds Wednesday’s low, but downtrend is resuming
AUD/USD-Most PPI induced gains get erased
Jan 12 (Reuters) –The dollar index rose 0.17%, rebounding from losses on weaker-than-forecast U.S. PPI readings that sent 2-year Treasury yields to their lowest since May and futures nearly pricing in rate cuts from March until year-end.
The index’s gains were led by euro and sterling slips and attenuated by USD/JPY’s losses caused by almost motionless 2-year JGB yields versus tumbling Treasury yields. Two-year JGB yields are already at zero, with no place to go but up.
But pricing in of more than twice the rate cuts in the December Fed’s 2024 dot plots and associated dollar shorts were trimmed ahead of the holiday weekend in the U.S. There is also the likelihood that Fed policymakers will push back against the expected rapid-fire rate cuts.
The haven dollar saw some demand ahead of Saturday’s election in Taiwan, as China vows to “smash independence plots” and after a U.S. and UK-led coalition attacked Houthi forces in Yemen that have been attacking vessels in the key Red Sea shipping route.
Oil prices shed the bulk of the surge seen after the coalition’s actions that triggered regional escalation concerns.
EUR/USD fell 0.15% as the rebound on tumbling Treasury yields again ran into sellers as the 1.1000 level came into view.
Chief ECB economist Philip Lane said on Friday that rate cuts are not a near term topic. Given futures do not price in a first rate cut until April, Lane’s near-term view suggests no action this month, but perhaps discussion at the March meeting, with easing plans carried out in April if the disinflation trend persists.
USD/JPY fell 0.24%, but was off Friday and Wednesday’s 144.35/33 lows. Two-year Treasury-JGB yield spread are down 20bp from last week’s highs. And Thursday’s false breakout above key resistance at 146.10 looks like the conclusion to the correction of the November-December plunge from 2022/23 32-year highs at 151.94/92.
Sterling fell 0.1% after earlier gains faltered below Thursday’s highs and was within its recent range ahead the UK inflation report on Wednesday and U.S. retail sales the same day.
Bitcoin dove to more than erase gains that followed this week’s SEC approval of bitcoin ETFs, while ethereum on Friday reached its highest since May 2022.
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Editing by Burton Frierson
Randolph Donney is a Reuters market analyst. The views expressed are his own.
