June 17 (Reuters) – The dollar rallied on Friday ahead of a long USD weekend after profit-taking pullbacks versus the euro, yen and sterling following this week’s aggressive 75bp Fed rate increase, a shock 50bp SNB rate hike and a dovish outcome from the enduringly accommodative BOJ.
That leaves watching the ECB prepare for its first rate hike while fending off fragmentation risk in the euro zone government bond market and facing ongoing economic uncertainty from Russia’s war in Ukraine and diminishing natural gas flows from the east.
Friday’s two second-tier USD data releases fit into the recent weaker-than-forecast trend that is increasing expectations of a slowdown or recession in 2023-24.
The market’s terminal USD rate projection has fallen nearly 25bps from its post-FOMC peak after futures priced in two more 75bps Fed hikes.
In a semi-annual report to Congress Friday, the Fed said its commitment to restoring price stability is unconditional and necessary for sustaining a strong labor market.
Still, the Fed’s own projections indicate that unemployment will rise as it damps demand enough slash inflation from 8.6% to its 2% target.
EUR/USD fell 0.65% after its recovery from Wednesday’s failed attempt to break 2022 and 2017’s 1.3049/40 lows ran into ichimoku hurdles near the 10-day moving average, leaving the market in limbo.
The day’s biggest loser was the yen, with USD/JPY up 2.1% after the BOJ meeting ended recent speculation that it might at least hint at the need to rethink its yield curve control cap on 10-year JGB yields, which has been under constant market pressure recently.
USD/JPY’s 135.42 Friday high sits just below Wednesday’s 24-year high at 135.60 on EBS after Thursday’s correction to 131.49.
Unless data begins to eventually force the Fed to ease forward guidance or the BOJ achieves enough core-core inflation, USD/JPY’s bullish, multi-decade head-and-shoulders reversal could see 1998 highs revisited.
Sterling lost 1.1% as the BoE’s gradualist 25bp rate hiking program and option to act more forcefully later on were diluted slightly by more measured comments from its chief economist.
British finance minister Rishi Sunak took BoE Governor Andrew Bailey to task regarding the need to deal with inflation at 9% and set to surpass 11%. That will keep the focus on this coming Wednesday’s UK CPI report.
Though equities firmed amid lower interest rates, AUD/USD tumbled 1.5% as commodities prices plunged on growing worries about global slow-downs or recessions as central banks fight inflation with rate hikes.
USD/CNH was up 0.3% and USD/CAD 0.66%.
Bitcoin and ether were little changed and just above June’s collapse lows.
The USD is closed Monday, with the data calendar quite light until Thursday’s June S&P Global PMI readings and Friday’s Michigan sentiment and new home sales.
(Editing by Burton Frierson. Randolph Donney is a Reuters market analyst. The views expressed are his own.)