The US dollar remains firm

The US dollar retreated initially overnight on soft US data and some dovish Fed-speak.  US housing starts and services PMIs, were weaker than expected. Along with dovish remarks from Fed member Bowman, this led to a modest risk-on rally which pushed the dollar lower. However, later in the day, hawkish rhetoric from Messrs Bostic and Kaplan abruptly reversed that course, with gold sharply reversing gains and the US dollar rallying in the same manner.


The dollar index fell to support at 91.50, its 200-day moving average (DMA), before hawkish comments from Fed officials Bostic and Kaplan abruptly turned its direction higher. The dollar index finished the day 0.10% higher at 91.78.


Similar moves were mirrored by the major currencies, with EUR/USD and GBP/USD rallying before retreating to finish almost unchanged. AUD/USD and NZD/USD rose around 0.35% to 0.7575 and 0.7050 and managed to hold onto these gains, reflecting the mixed views on risk sentiment at the moment. Both antipodeans are clinging onto their 200-DMAs, suggesting further gains if US data is softer tonight and the greenback falls.


USD/JPY peeped above 111.00 overnight and remained there this morning after US yields firmed slightly overnight. However, it lacks momentum still, and I suspect US yields will need to move directionally higher for USD/JPY to sustain itself at these levels. The pair remains a yield differential play.


US/Asia continues to drift higher after the PBOC, once again, set a weaker yuan to fix versus the US dollar this morning. With onshore USD/CNY at 6.4805 and offshore USD/CNH at 6.4825, both pairs have now closed above their respective 100-DMAs. Notably. This week, USD/Asia has not managed to retrace any of its US dollar losses, suggesting once again, regional markets are still susceptible to taper-speak, and hawkish Fed official-speak. With the PBOC seemingly signalling it wants a weaker yuan, the downward pressure will remain on Asian currencies as a whole for now.