Sellers swarm dollar’s post-PMI gains vs euro and yen

Jan 24 (Reuters) – The dollar index fell in choppy trading on Tuesday after traders faded a brief rally in the US currency at key resistance levels versus the euro, pound and yen that following PMI data that was less dour than expected.

Bolstering the euro, euro zone PMI edged back into expansion territory as the worst-case scenarios stemming from the war in Ukraine have been averted and Europe’s unseasonably warm winter has left energy supplies intact.

Meanwhile, the potential for strong Chinese demand after its reopening adds to the reasons for the ECB to stay the course, with further 50bp rate hikes expected.

In contrast, markets continue to price in roughly two 25bp Fed hikes and a mid-year peak below 5%, with one or two 25bp cuts before year-end despite policymakers’ warnings that rates may have to rise above 5% and stay there for some time to vanquish inflation.

EUR/USD rose 0.1% after recovering from its post-US PMI dive to 1.08355 on EBS, right at the 200-hour — 10-day — moving average. Monday’s trend high and 50% Fibo of the entire pandemic downtrend at 1.0927/39 are key hurdles.

The macro focus is now on US data due out on Thursday and Friday. Most watched will by Q4 GDP, jobless claims on Thursday and core PCE, consumption and income on Friday, with nods to housing data and University of Michigan sentiment.

Last week’s below forecast 190k initial jobless claims were from the monthly employment survey week, increasing attention on the report before the Fed meeting conclusion on Feb. 1.

Sterling fell 0.3%, but it, too, found buyers by its 10-DMA, though it only partly recovered losses incurred after UK PMI deteriorated further.

USD/JPY fell 0.48% after falling from a fleeting breach above its 21-DMA by 131. Lower Treasury yields and steadier JGB yields weighed.

(Editing by Burton Frierson; Randolph Donney is a Reuters market analyst. The views expressed are his own.)