EUR/USD rebounds in post-payrolls and pre-CPI reckoning

Feb 9 (Reuters) – The dollar index fell on Thursday as the lift from Friday’s hot jobs report and Fed policy comments faded before the Feb. 14 US CPI that will guide market positioning for future rate hikes, which has already reached officials’ median 5-5.25% expectations.

A rise in US jobless claims after 9-month lows the prior week and another Fed speaker endorsing a more measured pace of rate hikes to tame inflation nW1N33R03E produced fleeting session lows in Treasury yields and the dollar. But both recovered with the pending CPI threat and 30-year afternoon auction prepping.

EUR/USD was up 0.25% ahead of the New York close, well off the 1.0791 high by the 10-day moving average and Monday’s 1.0800 peak.

That followed Germany’s belated release of January inflation data that failed to include a core reading and was skewed by re-basing and re-weighting.

Sterling rose 0.42%, but early risk-on gains were trimmed after Treasury yields recovered. Its rebound was capped near 1.2200 and ahead of Friday’s UK GDP report.

USD/JPY recovered most of its earlier losses with help from rebounding Treasury yields after earlier making new lows for the week but failing to attract much follow-through selling.

Yen traders are also focused on next week’s nomination of new BoJ leadership amid persistently rising inflation that the Japanese central bank’s embattled JGB yield cap policy looks ill-equipped to handle.

The trade-offs between tighter policy that supports the yen and reduces imported inflation versus the negative impact on Japan’s exporters, value of foreign sales and investments, as well as the government’s enormous debt-to-GDP ratio, argue against a rapid removal of ultra-easy policies.

The biggest dollar losses were against Swedish crown after the Riksbank raised rates 50bp, explicitly meant to underpin the crown, which gained 2.5% against the dollar.

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