US recap: Treasury yields’ moment of doubt dents dollar

Oct 4 – The dollar index fell 0.27% on Wednesday amid a retreat in Treasury yields and oil prices as the markets stepped back to ponder the potential negative economic impact and sustainability of those trends.

Wednesday’s moment of doubt included USD/JPY’s uptrend after its 150.165-147.30 dive from Tuesday’s 2023 peak and today’s crude oil collapse, with little clarity provided by the day’s US economic data.

ADP’s 89k employment increase missed the 153k forecast. Friday’s non-farm payrolls are forecast slipping to 170k from 187k and are given far more weight by markets.

ISM services were as forecast at 53.6, off slightly from August’s 54.5, weighed down by new orders dropping from 57.5 to 51.8, a nine-month lows.

August factory orders beat forecast, but did so largely due to a 9.4% surge in orders from petroleum refineries that boosted gasoline supplies enough to send those prices down 26% from August highs and toward 2023’s lows.

The euro zone is seen likely to contract in Q3, while US Q3 GDP forecasts are as high at 4.9% annualized. And the ECB is seen even less likely than the Fed to hike rates again.

EUR/USD rose 0.37% amid the broader dollar pullback and 7bp rebound in 2-year bund-Treasury yields spreads. The bounce from Tuesday’s 1.0448 low on EBS might need Friday’s payrolls report to echo Wednesday weak ADP to gain traction.

USD/JPY was flat in a very tight trading range by 149 that it’s been in since rebounding from Tuesday’s suspicious 150.165-147.30 plunge just after bullish JOLTS data.

The potential threat of Japanese intervention to support the yen has left the USD/JPY uptrend in limbo, but still above key kijun support at Tuesday’s 147.30 spike low.

Sterling rose 0.5%, aided by an upward revision to UK September PMIs, though still in contraction below 50. The rebound came after 10- and 30-year Treasury yields fell after probing key resistance earlier on Wednesday.

Thursday features US jobless claims and trade balance, but all eyes are on Friday’s jobs report.

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