BUZZ-COMMENT-US recap: EUR/USD sheds post-CPI gains as risk appetite suffers

May 11 (Reuters) – The dollar index held steady on Wednesday after surrendering fleeting gains in the wake of above-forecast April CPI data, as the fall in annual inflation rates from the previous month focused markets on the possibility that the peak in U.S. price growth may have been passed nL2N2X315F.

Peak inflation would also mean markets had probably priced in the top of the Fed rate-hikes expected in coming months, a key development for those seeking the dollar’s hefty uptrend to either resume or retreat.

But hopes for such clarity were disappointed, with the dollar only marginally lower in post-London trading, with EUR/USD, USD/JPY and GBP/USD, stuck in recent consolidation ranges.

It might take a substantial deviation from forecasts for next Tuesday’s U.S. retail sales data to break the dollar out of consolidation ranges.

EUR/USD got early help from ECB President Christine Lagarde cementing expectations for rate hikes to start as soon as July nL5N2X32V5, but Euribor yields ended up lower on the session, allowing 2-year Bund-Treasury yield spreads to slide 8bp from Tuesday’s close and EUR/USD to shed its post-CPI report gains.

EUR/USD was about flat and posted its fourth consecutive lower daily high, though it held above May and April’s 1.0483/695 EBS trend lows.

Germany’s final April inflation reading at 7.4% came as Bundesbank President Joachim Nagel said nL2N2X30FN the bank expected the inflation rate in Germany to reach close to 7% in 2022.

Sterling fell 0.4%, also whipsawed by the post-CPI swings in Treasury yields and stocks, finding sellers at the 1.2400 high by Monday’s 1.2405 minor rebound high.

UK consumer despair amid a harrowing inflationary crunch has likely forced the BoE to take a more measured rate-hiking approach than the Fed into year-end nL5N2X157E.

Sterling clung to June 2020’s swing low support at 1.2252, with Brexit trade issues unsettled nL5N2X32GN.

USD/JPY fell 0.5% after a brief rebound with Treasury yields in the initial response to the mixed CPI data. Treasury yields retreated and stocks sank as the session wore on, weighing on Treasury-JGB yield spreads and sparking broader haven demand for the yen.

USD/JPY was below on-close pivot point support at 130.10 on EBS, a close below which would target last week’s 128.62 low.

USD/JPY flashed its first weekly uptrend-ending signal since embarking on its 14.5% rally off March’s lows. If new highs in Fed hike pricing aren’t made after Tuesday’s retail sales report, a broader correction is possible nL2N2X31OQ.

High-beta currencies were pushed about by Treasury yields swings but also stocks, which eroded earlier gains against the dollar and sent them tumbling against the haven yen.

Commodity prices were higher due to supply concerns and dollar strength.

Bitcoin and ether extended their slides amid derisking and the collapse in stablecoin TerraUSD nL2N2X30RZ.

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

((Randolph.donney@thomsonreuters.com))