Jan 4 (Reuters) - The dollar fell on Wednesday but managed to recover some of its earlier losses after ISM manufacturing and JOLTS data revealed labor market tightness the Fed frets about.
Aside from the employment index rebound, however, the ISM data were quite weak, limiting the dollar's recovery.
Minutes from December's Fed meeting affirmed to step-down in rate hikes, while emphasizing none on the committee expected rate cuts this year . Treasury yields and the dollar were briefly higher after the minutes, but Friday's payrolls and CPI next week are paramount.
Euro, sterling and particularly high beta currencies rallied versus the haven dollar and more so against the yen amid additional below-forecast European inflation data , better-than-forecast euro zone PMIs , tumbling energy prices and lingering hopes China's rapid Covid reopening would be followed by a rebound in demand from the world's second-largest economy.
And the nearly 30bp drop in 10-year bund yields from Monday's failed breakout above October's peak was euro-bullishly joined by an 8bp drop in 10-year BTP-bund yields spreads.
EUR/USD's 0.5% rise Wednesday was capped near the 10-day moving average, as the dollar's sharp slide since September consolidates.
USD/JPY rose 1.14%, clearing hurdles at 132, but would have to close above the kijun at 134.70 to undermine the downtrend since October promoted by intervention, BoJ policy tweaking and late 2023 Fed rate cut pricing.
Sterling rose 0.7% after Tuesday's 1.1900 low failed to break the Nov. 30 swing low there, but resistance remains by 1.2100 as recession risks in the UK are weighed .
Before the Fed minutes, Minneapolis Fed President Neel Kashkari said the Fed should continue hiking interest rates at its next few meetings at a minimum, and that his own forecast was that the policy rate should initially pause at 5.4% .
While 5.4% is fairly close to December's dot plot mean, it's well above the roughly 5% peak currently priced by the market, with investors also factoring in nearly 50bp in cuts after rates peak in June.
Ahead of Friday's payrolls report, Thursday brings ADP and jobless claims.
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(Editing by Burton Frierson Randolph Donney is a Reuters market analyst. The views expressed are his own.)
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