US recap: EUR/USD at post-payrolls lows with haven dollar favored

Feb 10 (Reuters) – The dollar ended the week on a strong note as Friday’s US data pointed to higher inflation heading into next Tuesday’s pivotal CPI report.

The latest inflationary pangs contributed to the dollar-supportive environment following last Friday’s extremely strong payrolls data, which lifted Fed rate hike expectations.

Risk aversion also supported the dollar through safe-haven flows tied to worries about the tenacity of global inflation and geopolitical and economic risks related to Russia and China.

Early and broad yen gains linked to reports of an unexpected pick to take over BoJ leadership, as its yield curve control policy remains under pressure, faded, particularly against the dollar.

The yen pullback began after Kazuo Ueda, the supposed government pick to replace Governor Kuroda, said the bank’s current policy was appropriate.

USD/JPY rallied back to roughly flat after being down more than 1% initially on the BoJ intrigue.

EUR/USD fell 0.6% after probing the pivotal 55-day moving average support at 1.0682 and making a marginal new post-payrolls low despite 2-year bund-Treasury yield spreads rising 11bp, in part because Europe’s inflation uptrend remains more of an economic threat than a euro plus via less negative yield spreads.

And the hot US payrolls report received some tangential corroboration after Canada’s jobs data smashed expectations. USD/CAD fell 0.7% on the report.

Adding to the angst in Europe are concerns about the direction of Russia’s war against Ukraine, its 5% oil output cut and less optimism regarding China’s reopening and relations with Washington.

Record high Norwegian inflation and core inflation at 6.4% year-on-year versus 6.1% forecast reinforced the region’s inflation challenges.

Sterling fell 0.5%, unaided by flat UK GDP.

Tuesday’s US CPI and an expected BoJ leadership announcement that day top upcoming events risks. Wednesday brings US retail sales.

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