US yields lift the dollar

Higher US yields boost the dollar

The rise in long-dated US yields overnight reversed intraday losses and lifted the greenback. The dollar index rose 0.14% to 99.98, where it remains in Asia. The index’s next target remains the 100.50 region, with support at 99.50.

EUR/USD duly made an attempt to recover overnight, climbing to 1.0935 at one stage. However, with the Austrian Chancellor’s trip to Moscow being a failure, and with US yields soaring, EUR/USD retreated. It finished the day just 0.07% higher at 1.0883, where it remains in Asia.  Multi-year support at 1.0800 remains close by with risks skewed to the downside. A dovish ECB will compound the negative outlook for the euro. Failure signals more losses to 1.0600 and 1.0300 initially. Resistance is now at 1.1200, with longer-term resistance at 1.1300.

Sterling tested support at 1.3000 once again overnight but managed to close just above it at 1.3030. Positive UK data may give sterling a temporary respite but a daily close under 1.3000 signals another round of losses targeting 1.2850 and 1.2700.

The Japanese yen was buffeted by another round of weakness overnight as the US/Japan rate differential continued widening. USD/JPY rose 0.89% to 125.40. Some official “watching markets closely” speak from Japan has only pushed it 20 points lower to 125.20. USD/JPY remains on track to test its multi-year high at 125.80 this week. Any drop to 124.00 and 123.50 should find plenty of keen dip buyers.

Asian currencies weakened overnight as US yields rose, pressuring EM currencies where central banks are reluctant to tighten to match the Fed. That weakness continues in Asia with USD/KRW, USD/PHP, USD/INR, and USD/TWD has risen once again. USD/CNY is steady at 6.3700 after a neutral PBOC USD/CNY fixing. Fears around China’s growth outlook have not abated and will be another headwind regional currencies will have to deal with. Asian currencies will be sensitive to increased lockdown headlines from China.

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