US dollar under pressure

The US dollar continues to retreat

The dollar index finished the overnight session almost unchanged with volatility squashed by the US holiday on Monday. However, the US dollar retreat has restarted this morning, with the dollar index falling 0.26% to test support at 90.25. Failure sets up a move lower to 90.00 ahead of the January lows at 89.20. Only a move higher again by US yields in New York this evening is likely to stem the short-term bearish narrative for the greenback.

The dollar weakness today is relatively broad-based across both developed and regional Asian currencies. EUR/USD has risen 0.16% to resistance at 1.2150, signalling further gains to 1.2200 is possible. GBP/USD has climbed 0.36% to 1.3950 in its new role as the markets’ vaccination darling. An attempt on 1.4000 seems likely in the next 24 hours. The New Zealand dollar is 0.50% higher, while the Australian and Canadian dollars have risen 0.30%.

In Asia, regional currencies are all higher versus the greenback, led by the Indonesian rupiah, with USD/IDR falling to 13,900.00 today. If USD/IDR holds under 14,000 this week, the odds of a Friday rate cut will increase. USD/CNH is flirting with 6.4000, although further progress lower is likely to be limited by the PBOC until China returns on Thursday. The Singapore dollar and Malaysian ringgit are 0.20% higher.

USD/JPY is bucking the trend, with the cross highly sensitive to US/Japan interest rate differentials. USD/JPY has risen to its 200-day moving average (DMA) at 105.60 this morning and looks set for further gains if US yields remain firm this evening.

USD/JPY aside, firm US yields are unlikely to upset the global recovery applecart in the short term, meaning the US Dollar weakness should continue into the New York session this evening. With Tuesday’s data calendar ultra-light, only a headline surprise is likely to shake up what could be a quiet day for the currency markets.

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