The dollar fell alongside Treasury yields on Thursday after initial jobless claims vaulted up to the highest level since October 2021, spooking traders sitting on long positions ahead of next week's Fed meeting.
Though some policymakers have signaled a possible interruption to their string of 10 successive hikes, surprise rate increases from the RBA and BoC this week raised bets on the Fed following suit.
Fed policy pricing didn't shift much after the report, so a June skip is still seen likely followed by a final 25bp hike in July, and then cuts more probable from December onward.
The jump in initial claims -- the biggest month-on-month rise in nearly two years despite continuing claims falling -- struck a nerve following the May ISM services employment index fall below the breakeven 50, and ISM manufacturing index in contraction for a seventh month.
It also follows a stunning May payrolls rise that was marred by a 0.3% jump in the jobless rate and 310k drop in the household survey's employment measure.
There's a concern that post-banking crisis and debt ceiling pricing out of roughly 100bp of H2 Fed rate cuts went too far, with signs of slowing global growth manifest.
Also, after nearly a year of Treasury yield curve inversion via 500bp of hikes, the Fed's much closer to the end of its dollar-boosting tightening cycle than the ECB and BoE, whose rates are well below local inflation.
EUR/USD gained 0.75% after the downtrend from April-May peaks stalled the last two weeks.
Prices are now near the daily cloud base and 100-day moving average resistance at 1.0806/10.
Sterling climbed 0.9%, aided by the BoE being priced to hike rates roughly another full percent to nearly in line with the Fed, amid febrile wage-led inflation.
USD/JPY dove 0.85% toward its 21-DMA, June's low and 23.6% of the March-May rise at 138.62/44/27.
If Fed rates are cresting, May's 2023's highs may mark the overbought and spec-driven ABC correction's end.
Tuesday's US CPI is the focus before Fed, ECB and BoJ meetings.
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