The US dollar retreats

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.

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Jeffrey Halley

Jeffrey Halley

Senior Market Analyst, Asia Pacific
With more than 30 years of FX experience – from spot/margin trading and NDFs through to currency options and futures – Jeffrey Halley is OANDA’s senior market analyst for Asia Pacific, responsible for providing timely and relevant macro analysis covering a wide range of asset classes. 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, Channel News Asia as well as in leading print publications including 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.
Jeffrey Halley
Jeffrey Halley

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