Dollar dips despite inflation concerns

Currency markets remain steady after overnight dollar retreat

Currency markets ignored the inflation histrionics of the equity space overnight and continue to do so in Asia today, content to keep on selling US dollars. The move is ironic given that the higher inflation theme has been US dollar supportive in recent times. The dollar index fell 0.45% to 89.80, where it remains in muted Asian trading.


With the technical charts behaving as expected in currency markets, it makes more sense to concentrate on that picture, rather than the overnight noise. In this respect, the dollar index fell through support at 90.00 and traced a double bottom at 89.70 out overnight. 89.70 to 90.00 should contain it in Asia today, although the bias is to a lower greenback which could test support at 89.20 by the week’s end.


On that theme, EUR/USD and GBP/USD behaved precisely as expected, with both pairs rising overnight. EUR/USD rose 0.60% to 1.2220 and is expected to retest resistance at 1.2240, opening further gains to 1.2400. GBP/USD rose 0.40% to 1.4180, just ahead of resistance at 1.4240, after which further increases to 1.4400 are expected. Both currencies appear to be receiving post-Covid reopening premiums into their pricing. USD/JPY continued to grind lower to 108.90 but looks set to continue to be confined in a 108.50 to 109.50 range.


Risk appetite in the currency space lifted Asian currencies in overnight trading, and they are holding steady in Asia, helped by another neutral PBOC USD/CNY fix. As per yesterday’s note, most of the volatility is occurring in the DM space with EM content to play a side-line role, content to wait for more clarity from the deafening noise in equity markets.


The data calendar is light this week, with the only major release being the FOMC minutes this evening. Earlier in the day, British CPI for April showed a strong gain of 1.5%, up from 0.7% beforehand. This matched the forecast and points to increasing inflationary pressures as the UK economy continues to reopen.

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, from 2016 to August 2022
With more than 30 years of FX experience – from spot/margin trading and NDFs through to currency options and futures – Jeffrey Halley was 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 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.
Jeffrey Halley
Jeffrey Halley

Latest posts by Jeffrey Halley (see all)