Credit: REUTERS/Fayaz AzizJan 28 (Reuters) - The dollar index was little changed on Friday, retreating from its latest Fed-inspired highs after weaker-than-forecast employment cost, personal income and Michigan consumer sentiment data , but rising long-term inflation expectations should keep it supported in anticipation of rate hikes this year.
The final Michigan sentiment report showed 5-year inflation expectations climbed to 3.1% from December's 2.9%. The Fed is trying to avert just such rising inflation expectations with its tightening guidance, thus five 25bp rate hikes are priced in for 2022 versus four before Fed Chair Jerome's Powell's news conference on Wednesday.
With that in mind and amid concerns about slowing growth in China, the dollar rallied against the Australian, New Zealand and Canadian dollars, as well as the Mexican peso.
EUR/USD was marginally higher after rebounding from fresh 19-month lows at 1.1122 by the 100% Fibo off the Jan. 14-21 drop at 1.1119. With prices trading Friday below the stretched, lower 21-day Bolli band following its 3% plunge since Jan. 14 and into week and month-end, prices were ripe for some consolidation.
If prices cannot trade above the 1.1186 nadir from November, a further fall toward the 76.4% Fibo of the 2020-21 rally or the 161.8% Fibo from January's high at 1.1040/06 is likely.
USD/JPY was also little changed after its early Friday high at 76.4% Fibo resistance was followed by the data and Treasury yield pullback driven drop to 115.125, allowing overbought intraday studies to be reset.
Downside looks limited unless next week's ISM and non-farm payrolls data miss badly enough keep the uptrend in short-term Treasury yields subdued .
Sterling was flat, holding above Thursday's lows ahead of the Feb. 3 BoE meeting, which is expected to deliver another hike following December's move. With 2022 BoE implied rate hikes about on par with the Fed, sterling has held well above its late 2021 lows.
The Australian dollar was down 0.6% to its lowest since August 2020. The RBA is seen lagging behind the Fed in rate hikes in H1 and the aussie's role as a risk proxy leaves it in the lurch amid U.S. tightening.
USD/CAD was up 0.25%, with gains limited by BoC rate hike expectations and the highest oil prices since 2014.
Bitcoin and ether were relatively subdued, finding some stability in firmer stock indices, though risk-aversion concerns are likely to linger unless the S&P 500 can begin using its 200-day moving average as support, rather than resistance.
ISM updates on Tuesday and Thursday, and Friday's employment report are next week's the top releases, though Thursday's BoE and ECB will be watched closely.
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(Editing by Burton Frierson Randolph Donney is a Reuters market analyst. The views expressed are his own.)
((Randolph.donney@thomsonreuters.com))
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
