Euro eases from three-month high as US Dollar stabilises, Jobless Claims beat expectations

• EUR/USD trims earlier gains as the US Dollar stabilises following Wednesday’s sharp selloff.
• Rebounding Treasury yields and lower-than-expected Jobless Claims support the Greenback.

EUR/USD trims part of its earlier gains on Thursday as the US Dollar (USD) stabilises following the previous day’s sharp selloff. At the time of writing, the pair trades around 1.1686 after touching an intraday high of 1.1710, its highest level since May 14.

The Greenback finds support as US Treasury yields rebound following Wednesday’s steep pullback, which was triggered by the US Treasury Department’s announcement of larger liquidity-support buybacks for longer-dated government securities.

DBS Group Research strategist Chang Wei Liang acknowledges the recent bout of Dollar weakness but cautions against extrapolating further downside from the latest US Treasury move. He argues that, “given that the additional buybacks are very small and there is also no change in monetary policy, the USD is more likely to consolidate today rather than track lower,” suggesting the currency may pause rather than extend its recent slide.

The US Dollar Index (DXY), which tracks the Greenback against a basket of six major currencies, trades around 98.76, recovering from an intraday low of 98.56.

Meanwhile, the latest US labour market data provide additional support to the Greenback. Initial Jobless Claims fell to 206K in the week ending August 15, below market expectations of 210K and the upwardly revised previous reading of 212K.

On the monetary policy front, the Federal Reserve (Fed) and European Central Bank (ECB) are expected to take different paths at their meetings next month. The Fed is widely expected to keep interest rates unchanged, while the ECB is seen raising rates.

These differing policy expectations come amid heightened energy-driven inflation risks as the US-Iran stalemate keeps shipping through the Strait of Hormuz restricted.

San Francisco Fed President Mary Daly said on Thursday that “rising bond yields don’t give a signal for policy” and that Fed policy “is in a good place.” She added that “short-term yields show markets understand the Fed’s reaction function,” while stressing that the central bank “really has to focus on achieving its inflation target.”