Comment: US recap: USD slide on falling UST yields pared ahead of U.S. CPI

Noram Lithium

12/08/2024 19:14

Aug 12 (Reuters) - The USD index held at 103.21, trading either side of
flat in NorAm's afternoon, having churned in a slight 103.31-103.09 range on
Monday. Summer liquidity is on full display as moves appear more dramatic based
on flows, with no significant data released on Monday.
    Markets are treading water awaiting U.S. PPI data on Tuesday and U.S. CPI on
Wednesday which may inform on the state of inflation, and the near-term depths
and size of Fed rate cuts.
    EUR/USD, the largest component of the USD index, edged up 0.16% to 1.0933,
while trading in a 1.0939-1.0912 range. EUR/USD is steady awaiting Tuesday's ZEW
euro zone expectations, as well as German economic sentiment and current
conditions data. Technically, euro support is at 1.0892, the 50% Fibo of
1.0777-1.1009, and 1.0835, the 200-DMA.
    USD/JPY rose 0.34% to 147.13 in NorAm afternoon trade. The yen rallied to a
148.23 high in Asia as local markets were closed for holiday. Falling UST yields
supported the yen in NorAm as U.S.-Japan yields converged. USD/JPY's rally off
Aug 5 post-payroll lows is intact, and the pair traded a third consecutive
session of higher- highs and lows. Resistance is at 148.23, Monday's high, then
149.77, the August 2 high.
    GBP/USD rose to a session high at 1.2794 in NorAm as UST yields slipped.
Sterling bulls are a bit wary ahead of Tuesday's UK employment data release and
Wednesday's UK and U.S. CPI data. The recent paring of record GBP/USD spec longs
perhaps providing fodder for longs to reload. UK SONIA futures indicate the BoE
may cut rates a further 44bps into year-end 2024, while U.S. SOFR futures hint
at 100bps of Fed cuts. With Fed rate cuts seen deeper and faster than the BoE,
further GBP/USD gains may be likely, depending on the upcoming inflation
releases.
    UST yields slipped 2-4bps in the 2-to-10-year space, a steeper decline in
rates than other developed markets adding downside pressure on the dollar.
    Equities whipsawed early in the session, but are hovering near flat in NorAm
afternoon trading, amid tipped option interest, geopolitical unrest and mounting
U.S. political uncertainties.
    Commodities rallied, led by oil  CLc1  which is up nearly 3%, as Middle East
tensions gain traction. Copper is up around 1.7% as markets expect rates to move
lower in the near-term.
    
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 (Editing by Terence Gabriel
Paul Spirgel is a Reuters market analyst. The views expressed are his own.)
 ((paul.spirgel@thomsonreuters.com))