Higher US yields lift US dollar

Dollar gains ground against majors

Currency markets continued to trade in a choppy, but ultimately consolidative range overnight and this morning. Higher US yields overnight allowed the US dollar to be ascendant, the dollar index rising 0.48% to 101.78, having probed above 102.00 intraday. The dollar index has added 0.14% to 101.93 this morning. It remains in a broad range between support/resistance at 101.00 and 102.50.

EUR/USD fell on a stronger US dollar and weak data overnight, finishing 0.44% lower at 1.0730. It has eased another 0.13% to 1.0718 in Asia, having dipped below 1.0700 intraday overnight. EUR/USD is struggling to find the momentum to challenge resistance at 1.0800 and 1.0830. The job will become harder if US yields continue climbing, although lower oil prices would be supportive. Support is at 1.0680 and 1.0640.

GBP/USD eased by 0.42% to 1.2605 overnight, taking out support at 1.2600 intraday. It has fallen to 1.2595 this morning and has traced out a decent top at 1.2670 for now. The fragile economic situation in the UK likely means we have seen the best of the sterling rally for now, especially if the US dollar has bottomed. ​ Support is now at 1.2540 followed by 1.2500.

The overnight price action on USD/JPY highlighted unequivocally that the US/Japan rate differential is the primary driver of USD/JPY price action. Rising US yields overnight provoked an immediate response in USD/JPY, which rallied sharply by 0.85% to 128.70, rising another 0.40% to 129.20 in today’s session. USD/JPY is now well clear of its previous descending trendline resistance at 127.30, and if US yields rise in New York later today, it may well test 130.00.

AUD/USD and NZD/USD both eased slightly overnight, with NZD/USD disproportionately impacted as economic slowdown fears ratchet higher. NZD/USD has lost around 1.0% in the last 24 hours to 0.6490 today. Having traced out a series of tops at 0.6560, support lies at 0.6450. AUD/USD is only modestly lower today, implying a fair amount of AUD/NZD buying is going through the market. It continues to consolidate in a 0.7150 to 0.7200 range.

Nothing much is happening in the USD/Asia space today. Firmer US yields, and thus, a firmer US dollar, saw Asia currencies reverse most of the previous day’s gains, with the Malaysian ringgit, once again, a notable underperformer, as was the Thai bhat yesterday after weak data. With the PBOC setting neutral USD/CNY fixes over the last few sessions, the consolidation of USD/Asia looks set to continue. Weak PMI figures from across the region have seen further weakness today, but it will be the direction of the US bond market that will ultimately dictate whether the Asian currency sell-off is set to resume, or not.

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