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Cyclical rotation pushes dollar down

The US dollar found no solace in higher longer-end bond yields overnight, likely because the move was mirrored to some extent among other developed market currencies. The greenback suffered as the cyclical rotation into global recovery positioning continued gaining momentum. The dollar index fell 0.40% overnight, leaving it sitting on support at 90.00.

The euro, Japanese yen and Canadian dollars rose overnight, with the cyclical darlings, the Australian and New Zealand dollars booking 0.50% gains. The most notable gainer was the British pound which gained 0.50% to 1.4060 as the Prime Minister unveiled a reopening plan and vaccination progress continues impressively. GBP/USD broke through the top of its multi-month ascending wedge at 1.4000 overnight, targeting further gains above 1.4300. In contrast to Europe’s bungled efforts, Britain’s vaccine progress saw EUR/GBP fall through 0.8670 overnight, and the cross now targets 0.8300 in the coming weeks.

Major currencies are mostly unchanged in Asia, with local markets content to wait for the Powell testimony this evening. The PBOC set the yuan fixing slightly firmer at 6.4516 this morning while adding 10 bio CNY of liquidity via the repo market. Net, the effects were neutral and left USD/CNY at 6.4580, almost unchanged from yesterday.

With the PBOC content to leave the US dollar fixing on the firm side, activity in regional Asian currencies remains muted. The Korean won, Singapore dollar and Malaysian ringgit are around 0.10% higher, reflecting the dollar weakness overnight. In the bigger picture, regional Asian currencies remain content to range trade, awaiting China’s further direction.

Later in the day, all eyes will be on Fed Chair Powell’s testimony before Congress. Expect every single word to dissected, looking for hints that the Fed may taper QE sooner than expected. Mr Powell will go out of his way, I am sure, to reiterate that the Fed has no plans to taper anytime soon and rightly so, as I dread to think what a taper-tantrum of the 2020s will look like.