US recap: USD higher with yields; haven flow unwind boosts risk
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Aug 6 (Reuters) -The USD index drifted slightly higher as the recent global markets frenzy ebbed. The index rose 0.15% to 103 coming up off yesterday's 7-month low at 102.66 as volatility across markets abated and oversold markets snapped back.
Once again, interest rates, and a rise in UST yields, helped stabilize the dollar.
With UST yields having risen 10-12bps from the 2-year on out, and front-end yields off recent trend lows, markets are betting the Fed will not cut rates as deep as seen after Friday's dour payroll data.
EUR/USD fell 0.23% to 1.0926 by NorAm afternoon as German yields were unable to keep pace with the UST yield rise. As we await data that may inform on the Fed's policy path, it appears resistance is likely to remain firm just above 1.10 assuming U.S. inflation and Fed rate expectations remain anchored near current levels. Outside of jobless claims, the next key U.S. data will be PPI and CPI on Aug 13-14.
USD/JPY rose 0.7% to 145.20 nearing the U.S. close. Today's range spanning 146.36-143.63. Yen traders still working through Fed-BoJ rate expectations and today's bounce off low yields post-payrolls provided the impetus for recent shorts to cover, while awaiting U.S. economic and inflation data.
GBP/USD led the major currencies lower, the pound falling 0.63% to 1.2697 in NorAm afternoon trade. Sterling longs latching on to the lower global growth narrative and after the BoE's recent rate cut unwinding the record GBP/USD spec long. GBP/USD flirting with daily cloud top support by 1.2702 and the 100-DMA by 1.2684. The recent dip below 1.2829, the 50% Fibo of 1.2613-1.3044 adding to the bearish structure. A close below the daily cloud top will likely stoke GBP/USD weakness.
AUD/USD bucked the firm dollar trend rising 0.53% to 0.6530 in NorAm trade. The combination of the tempering of risk-off markets and more hawkish RBA comments after today's rate hold provided a boost.
Cryptos rallied as risk rallied and haven flows were unwound. BTC rallied 4.5% to $56.8k, the most liquid crypto found support just below 50k. Ether rose 3.5% to $2,525. Cryptos receiving a boost after Trump commented he would stockpile bitcoin.
Equities reclaimed nearly half of Monday's losses with the Nasdaq and S&P 500 both gaining around 2%.
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Editing by Terence Gabriel
Paul Spirgel is a Reuters market analyst. The views expressed are his own.
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