FOMC sinks the US dollar

US dollar retreats after FOMC meeting

The US dollar sell-off resumed with form overnight after the FOMC passed without incident causing US yields to remain almost unchanged. Having reduced short positions into the meeting, investors scrambled to reinstate them afterwards, with the EUR, GBP, AUD, NZD and CAD all rallying.

The dollar index fell 0.32% to 90.55 as G-10 currencies strengthened. The index has tested 90.50 this morning before moving back to 90.55. If US GDP passes without incident this evening, the index will probably continue falling towards 90.00.

EUR/USD rose 0.35% to 1.2130 overnight, and although retreating ahead of 1.2150, maintains a technical target of 1.2250. GBP/USD has risen to 1.3945 today, and a break of 1.4000 resistance signals further gains to 1.4300 in the week ahead. AUD/USD has recovered all of its CPI-related losses from yesterday, climbing to 0.7785 this morning. It has an initial target of 0.8000. NZD/USD rose 0.70% to 0.7245 overnight and initially targets 0.7300, with the technical picture suggesting that further gains above 0.7450 are now possible.

Interestingly, Asia sold the US dollar this morning versus the majors, only for it to retrace all of those losses leaving the G-10 currencies pretty much unchanged from their New York closes. With all roads leading to the US GDP data this evening, the major currency pairs may be content to join equity markets in wait-and-see mode for the rest of the session.

Asian currencies have played catchup to the overnight price action and are broadly former versus the greenback, with the PBOC setting a stronger CNY fix at 6.4715. The Indian rupee continues to be the standout performer, USD/INR falling to 74.327 overnight, before easing once again this morning to 74.30. It is hard to believe that USD/INR was nearing 76.000 last week. With the RBI reducing borrowing costs locally this week, equities have soared, and international fast money has followed despite the pandemic situation. The USD/INR sell-off may have more to go, with the one-year trendline it broke after the RBI QE announcement, a reasonable target. Today it lies at 73.800.

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