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Has the US dollar's winning trade just hit its biggest wall in months?
The dollar index slipped from a 15-month peak after jobless claims surprised to the upside, sending September rate-hike odds to 70%. Next week's CPI will decide if the pullback deepens.
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The dollar's rally lost momentum this week after a softer US labour-market signal prompted traders to pare back some of the more aggressive Federal Reserve rate-hike bets. The dollar index slipped 0.4% to 101.80, retreating from a fresh 15-month peak.
The shift began with Thursday's jobless claims print, which came in above consensus and showed a small uptick in continuing claims. That was enough to crack the consensus that had been building since the June payrolls report: the labour market was too hot for the Fed to pause. Federal funds futures now imply roughly a 70% chance of a September hike, down from 85% a week ago, traders said.
Two-year Treasury yields fell 8 basis points to 4.62%, their biggest single-day drop in three weeks. The move was sharpest at the front end, where rate expectations are most sensitive to labour-market surprises. Ten-year yields slipped just 3 basis points, steepening the curve slightly.
The dollar's pullback rippled across currency pairs. EUR/USD rose 0.5% to 1.0860, breaking a three-day losing streak. GBP/USD climbed 0.4% to 1.2620. The yen, which had been under consistent pressure from widening rate differentials, recouped some ground: [USD/JPY](/markets/boj-qt-cuts-assets-156-yen-floor-takes-shape) fell 0.3% to 139.40, pulling back from its highest level since November.