US recap: EUR/USD consolidates rally driven by Fed pivot hopes

Nov 18 (Reuters) – The dollar index rose on Friday for a second day after becoming oversold in its tumble following last week’s softer US CPI, consolidating above supports as Fed speakers pushed back against the market pricing a dovish policy pivot.

The dollar shrugged off data showing US existing home sales fell to their lowest since 2012, outside of the pandemic plunge, and leading indicators dropping by twice the 0.4% decline forecast.

EUR/USD fell 0.3% regardless of ECB speakers affirming rates need to rise further to become restrictive, as there was some relief Germany’s biggest union agreed to wage increases well below currently record-high euro zone inflation.

The ECB, and other central banks, are wary of wages trending sharply higher, exacerbating inflation and requiring even more policy tightening.

Sterling rose 0.2%, but like the EUR/USD, its recent recovery highs remained capped just below the 50% Fibo of this year’s downtrend, in sterling’s case at 1.2038.

The highly anticipated UK budget announcement Thursday was followed by a rebound in gilts yields, partly because the risk premia caused by September’s mini budget had already been shed and also because the new budget plan reveals how difficult it will be to lower rising debt servicing costs.

USD/JPY was nearly flat in a tight range below the 100-day moving average it broke bearishly below last week, now at 140.98. Friday’s 139.63 EBS low was the third consecutive higher low, as bulls try to keep prices from closing below the cloud base, last at 140.42, for the first time in 14 months.

Because the base rises above 141 next week, a bearish close is becoming harder to fend off.

Wednesday’s US durable goods and S&P Global’s November PMI are the last data points before Thursday’s Thanksgiving Day holiday.

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