COMMENT-US recap: Dollar down on dovish Fed survey, but Bostic props pre-CPI
The dollar index fell 0.2% on Monday, weighed down by the New York Fed's one-year consumer inflation survey outlook falling from 3.4% to 3.0%, its lowest since January 2021.
That survey's results dragged 2- and 10-year Treasury yields down to Friday's pre-payrolls report lows and futures pricing of 2024 rate cuts closer to the 150bp seen in late December. A first cut in March is also again more heavily favored, but Thursday's CPI will be the litmus test for Fed expectations and the dollar.
The dollar and Treasury yields then found some support in comments from Atlanta Fed President Raphael Bostic that leaned toward a wait-and-see approach to policy, but markets remain reluctant to relinquish the position that there will be far larger Fed rate reductions than the three in the December dot plots.
EUR/USD rose 0.2%, briefly extending the rebound from Friday's 1.0877 low that held the uptrend line from November and 38.2% of the entire October-December rise in the wake of contradictory U.S. employment data. A close above the daily tenkan and 50% of the 1.11395-1.0877 December-January pullback at 1.1083 is needed to put December's high in play.
USD/JPY fell 0.35%, marginally extending its pullback from Friday's peak at major resistance by 146. The New York Fed survey briefly got prices below Friday's 143.805 lows at the 38.2% of the 140.27-145.98 Dec. 28 to Jan. 5 recovery. A close below that Fibo would put the 50% and 61.8% Fibos at 143.125/2.245 in play.
Those retracements are more likely if the U.S. CPI data are at or below forecast on Thursday. Tokyo core-CPI due out on Tuesday is forecast at 2.1% year-on-year versus 2.3% in November, likely reinforcing the BoJ's policy stasis and leaving USD/JPY mostly at the mercy of Treasury yield trends.
Sterling rose 0.2% on the back of rising gilts-Treasury yield spreads and better risk acceptance. Prices got closer to December's 1.2825 trend highs, that as 2-year gilts-Treasury yield spreads also rose toward December's highs and closer to positive readings.
AUD/USD fell 0.1%, partly unwinding the NY Fed survey-led recovery from earlier losses tied to tumbling energy prices and China angst. That amid the broader dollar pullback following Bostic's comments.
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