US dollar dips as inflation concerns ease
The US dollar headed south overnight, unable to hold onto recent gains as inflation fears temporarily subsided as the 30-year bond auction passed without incident, and a fall in US jobless claims turned attention back to recovery. The dollar index fell 0.44% to 91.45, although dollar short-covering has lifted it back to 91.55 in Asia.
EUR/USD negotiated the ECB meeting with aplomb, rising 0.45% to 1.980 overnight, and is seemingly out of the woods for now. A similar story has played out with GBP/USD and USD/JPY. The under-pressure Australian and New Zealand dollars also rallied overnight; both are testing their respective downside breakouts at 0.7805 and 0.7230 today. A close tonight above these levels by AUD/USD and NZD/USD will conclude their downward corrections for now.
Asian currencies rallied strongly overnight in the general risk-on environment, as the Wall Street price action alleviated the pressure on their dirty pegs to the greenback. Today some profit-taking is evident in Asia, with the Singapore dollar, Malaysian ringgit, Korean won and Thai baht all falling. Still, net-net, regional currencies, including the yuan, have booked impressive gains over the last 24 hours.
The US dollar short-squeeze looks to have run its course in the short-term, with the FOMC dot plots next Wednesday in New Year the next hurdle currency markets have to negotiate. A revision of interest rate increase expectations forward will likely see dollar strength return.
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Jeffrey Halley
He has previously worked with leading institutions such as Saxo Capital Markets, DynexCorp Currency Portfolio Management, IG, IFX, Fimat Internationale Banque, HSBC and Barclays.
A highly sought-after analyst, Jeffrey has appeared on a wide range of global news channels including Bloomberg, BBC, Reuters, CNBC, MSN, Sky TV and Channel News Asia as well as in leading print publications such as The New York Times and The Wall Street Journal, among others.
He was born in New Zealand and holds an MBA from the Cass Business School.
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