US recap: Dollar firms as Fed, BoE come into view

Oct 28 (Reuters) – The dollar index held onto gains of 0.31% heading toward the close of a mixed session on Friday after close-to-consensus US PCE and ECI data allowed traders to look ahead to Fed and BoE rate announcements on Nov 2 and 3.

At 110.90, the index has rebounded off weekly lows respecting 109.22, the 50% Fib of 103.66-114.78 June-Sept rise.

Both the Fed and BoE are expected to hike 75bp next week, with some market participants expecting the US central bank to shift to a less aggressive rate stance amid rising recession fears.

GBP/USD rose 0.3% to 1.1595, unable, for the third consecutive session, to hold gains above 1.16.

Cable’s shallow dip from recent trend highs indicates an underlying bid for sterling with traders curating longs ahead of the key central bank meetings.

With the UK political horizon clearing and the BoE expected to ultimately match the Fed on rates, further gains may be in the offing for GBP as traders unwind recent shorts.

EUR/USD remained on the backfoot after Thursday’s dovish 75bp ECB hike. Euribor futures are pricing in euro zone rates stalling near 3% in early 2023, nearly 200bp below US and UK rates sapping the EUR of recent vigor.

USD/JPY rose 0.96% to 147.66. The BoJ’s dovish hold and guidance kept USD bulls’ hopes alive as it pledged to add further accommodation as needed, torpedoing hopes for an upward adjustment in yield curve control or rate hikes as inflation ticks higher.

The takeaway from the BoJ and recent Japanese intervention is that the yen will continue to weaken but the MOF will take steps to manage the currency’s decline.

Cryptocurrencies eked out gains after early NorAm weakness, the equities rally supporting a 1.5% rise in bitcoin and 2.4% gain for ether.

US Treasury yields moved higher as traders still expect a further 135bp in Fed hikes by year-end 2022.

(Editing by Burton Frierson; Paul Spirgel and Christopher Romano are Reuters market analysts. The views expressed are their own.)