Dollar boosted by Powell taper comments
Jerome Powell signalled that he was on board with starting the Fed taper on Friday, which gained the US dollar a temporary stay of execution. The dollar index finished down 0.1% at 91.60. However, the US dollar has resumed its easing path in Asia as those comments faded, falling 0.09% today to 93.52, just above support at 93.50. Although US yields eased on Friday, the 10-year remains well above 1.60% and although the greenback could weaken towards 93.00 this week if US tech-heavyweight earnings produce, a looming FOMC meeting and taper, I believe, will signal the end of the US dollar correction lower.
EUR/USD has edged higher to 1.1660 today but is continuing to find headwinds ahead of 1.1700. It needs a daily close above 1.1700 to signal more gains, although the single currency remains more vulnerable than most to the Fed taper, as this week ECB policy meeting is unlikely to risk the easy money forever boat. GBP/USD gave back some recent gains, falling 0.30% on Friday as Covid-19 cases spiral amid and fears of new restrictions. It has rallied by 0.25% to 1.3785 today though, as progress has apparently been made on the Northern Ireland Brexit protocols, and amid general dollar weakness. It needs to overcome strong resistance at 1.3835 to signal new gains while remaining vulnerable to news surrounding minimum wage hikes.
The fall in US yields on Friday saw USD/JPY quickly retreat by 0.45% to 113.50 on Friday. Only a retreat through 113.00 changes the bullish outlook for the pair. Some risk-hedging buying by local buyers of yen ahead of the weekend election may cap gains this week, but otherwise, USD/JPY remains entirely at the mercy of the US/Japan rate differential. USD/JPY may resume its rally after another lower forever BOJ policy meeting this week as well.
USD/CNY remains calm, with a neutral fixing by the PBOC today leaving USD/CNY unchanged at 6.3820. The PBOC signalled a large liquidity injection today was related to upcoming tax and debt payments by the private sector. China seemingly remains unconcerned about yuan strength, probably with one eye on its imported energy bill. USD/KRW has fallen by 0.80% today to 1168.00 with 1200.00 its key pivot point. The Thai baht rally continues as it reopens, USD/THB has fallen 0.60% to 33.122, while the Malaysian ringgit and Indonesian rupiah continue to find support from strong commodity and energy prices.
