US recap: EUR/USD rebound halts on US data, Fed and risk rethinks

Nov 1 (Reuters) – The dollar index rebounded on Tuesday from an early 0.75% loss to modest gains after US data lifted Fed hike expectations before Wednesday’s FOMC meeting and key data later in the week.

Fed hike pricing rose to an implied terminal rate above 5% and 10-year Treasury yields rebounded 16bp from their lows mostly due a surprise rise on September job openings to 10.717 million versus 10.000 forecast and August’s upwardly revised 10.280 million.

Though not very timely, the data suggests the labor market was much tighter than expected, with job openings 42% higher than their pre-pandemic record highs.

The ISM manufacturing index dipped to 50.2 from 50.9 versus 50.2 forecast. New orders and employment indexes improved, though dives in the prices and supplier deliveries pointed to less inflation pressure.

Far more important will be broader ISM non-manufacturing out Thursday and forecast at 55.3 from 56.7.

September construction spending was up 0.2% against -0.5% forecast.

The earlier haven dollar selloff was greased by risk-on flows due to unsubstantiated rumors China might look into revamping its zero-COVID policies next year.

The early slide in Treasury yields was both a correction of big yield rises into month-end and on hopes the Fed will ease off the brakes after a fourth 75bp hike Wednesday. But October’s huge rebound in equities and little progress in loosening the tight labor market or inflation may dim those hopes.

EUR/USD fell 0.1% after hitting its lowest since last Tuesday. Record high euro zone inflation prompted ECB President Christine Lagarde to tout rate hikes, but the 2.84% implied ECB rates ceiling looks timid versus 10.7% inflation.

USD/JPY recovered most of its early losses egged on by intervention angst, but may need fairly hawkish Fed guidance to do battle with the MoF near 150.

Sterling was flat after the dollar’s rebound. The BoE’s small, inaugural QT was well received ahead of the 75bp hike expected at Thursday’s MPC meeting.

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