US recap: EUR/USD up, but early gains and UK-led risk-on flows shed

Oct 20 (Reuters) – The dollar eased on Thursday but recovered from its lows after risk-on flows following British Prime Minister Liz Truss’s resignation reversed as stocks retreated and Treasury yields rose.

Markets projected 2023 peak Fed rate is up at 5% versus 3.18% for the ECB and 0.20% for the BoJ. The BoE’s priced to hike rates by 300bp by mid-2023, with a ceiling near 5.17%.

US initial jobless claims fell to three-week lows, though continued claims rose. Philly Fed came in below forecast, but less negative than September’s.

Existing homes sales were about as forecast, though the downtrend in sales and prices shows the toll 30-year mortgage rates near 7% is taking. With that, Federal Reserve Bank of Philadelphia President Patrick Harker later reaffirmed rates need to be well above 4% by year-end.

EUR/USD was up 0.2%, well off early highs.

USD/JPY, the second-largest component of the dollar index, was marginally positive after a swift rise in Treasury yields brought prices back up toward Thursday’s 32-year peak at 150.09 on EBS.

The earlier initial fleeting 150.09-149.63 drop will lead to more suspicions of stealthy Japanese intervention after recent warnings.

The BoJ remains unwilling to raise its -0.1% policy rate and is also being forced to do more QE to keep 10-year yields below its the 25bp yield curve cap, making MoF intervention to slow the yen’s fall futile.

Japanese CPI Friday may be glossed over again.

Sterling rose 0.12%, shedding most of the gains from 1.1172 to 1.1338 that followed Bank of England Deputy Governor Ben Broadbent’s warning that BoE rate hikes currently priced in could present be a “pretty material” hit to the economy, assuming the reversion to tighter fiscal policy plays out.

That lowered Nov. 3 BoE meeting rate hike pricing to 75bp from recent highs near 100bp, supporting risk-taking and the pound. Truss’s resignation prompted sterling’s rise to 1.1338 high, but that was the third consecutive lower daily peak, suggesting a sell-the-news bias toward less worrisome UK fiscal and political matters.

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