US dollar eases post-FOMC

Pound tumbles after BoE’s non-move

The Bank of England’s surprise call not to hike rates overnight sparked some volatility in currency markets as it led to a sharp retreat in yields across the US and Europe. Somewhat surprisingly, the US dollar outperformed, with the dollar index rising 0.51% to 94.33, where it remains in Asia. Given the moves in bond yields and gold overnight, the rise of the US dollar is perhaps a signal that rallies elsewhere will be temporary.

EUR/USD fell 0.50% to 1.1550 overnight, and support at 1.1520 looms. Failure signals more losses to 1.1400. Resistance is well-marked at 1.1615 and 1.1700. Sterling collapsed 1.30% to 1.3500 overnight post the BOE policy decision, and the street had clearly gone into the meeting long expecting a rate hike. Below, 1.3400 looms as sterling’s next significant support, and its fate will likely be decided by the tone of the BOE speakers this afternoon.

USD/JPY has fallen to 113.65 as US yields moved lower overnight. It remains a slave to the US/Japan rate differential and looks to set to continue ranging into the Non-Farm Payrolls. USD/JPY has support at 113.40, while a rise through 114.70 signals more gains above 115.00.

AUD/USD and NZD/USD both retreated overnight as the US dollar staged an impressive rally. AUD/USD is 0.65% lower at 0.7393 as of this morning and is testing its 100-day moving average at these levels, thanks, in part, to the dovish fence-sitting of the RBA. NZD/USD has slumped by 0.80% to 0.7090 as of this morning. A close below 0.7100 this evening signals a retest of 0.7000.

Asian currencies retreated modestly overnight before firming slightly today. Asian markets are marking time into tonight’s US non-Farm Payrolls. The strong US dollar rally in the DM space overnight is a clear warning, though, that a blowout payroll number to the topside and a consequent rise in US yields could see another wave of selling in Asian FX next week.

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