USD weakness driven by a move lower in US yields in NY appears to have held in Asia, with most currencies trading around levels seen into the NY close. Nonetheless, there have been a few noteworthy idiosyncratic stories overnight, particularly in EM.

INR sees sharp underperformance following the RBI, which held rates, but leaned cautious on the country’s recent Covid-19 outbreak and announced further liquidity measures.

Korea rates have also lagged the UST and consequent Asia rates rally, with today’s Seoul and Busan by-elections keeping the market on edge amid the risk of further fiscal stimulus should the ruling party lose in Seoul in particular. More in the EM section below.

Data ahead is predominantly centred in the US, with FOMC minutes, Fedspeak and trade data due. Otherwise in EM we look to BRL production inflation, a PLN rate decision (hold) and HUF central bank minutes.


The dollar softened to a two-week low against a basket of currencies on Wednesday after U.S. bond yields declined as traders rolled back aggressive expectations that the Federal Reserve will tighten its policy earlier than pledged.

The dollar index hit a two-week low of 92.246, slipping further from a five-month high of 93.439 set on March 31, and last stood at 92.343.

"Following the dollar's strong gains last quarter, some investors appeared to have over-allocation in dollar assets and they probably need to sell dollars for rebalancing," said Kazushige Kaida, head of FX Sales at State Street Bank's Tokyo branch.

The previous quarter saw the dollar's strongest rally in years on rising expectations that accelerating U.S. economic growth and inflation could force the Fed to abandon its pledge to keep interest rates near zero until 2024.

The dollar index rose 3.6% in the quarter, its biggest quarterly rise in three years. Against the yen, the U.S. currency rose 7.2%, the largest since the last quarter of 2016.

As some bullish bets on the dollar were unwound this week, the euro rallied to a two-week high of $1.18785 and last stood at $1.1867.

Similarly, the common currency jumped almost a pence against the British pound overnight to trade at 85.90 pence, its biggest gain since Dec. 10, in a reversal from the pound's steady gains during the last quarter.

The dollar was on the defensive at 109.77 yen, extending its retreat from a one-year high of 110.97 touched a week ago.

Credit Agricole

USD: More caution warranted?

The USD has been on the defensive so far this week, regardless of better than expected economic data releases such as Monday’s Services ISM. As such, the most recent price action suggests the USD is trading close to overbought territory, an assessment that is fully in line with our FX positioning data.

While it can still not be excluded, that the currency faces renewed upside in the weeks to come, positioning as it stands argues in favour of short-term caution.

On top of that, it cannot be excluded that the Fed is turning increasingly cautious on rising risks of unwarranted tightening of financial conditions. From that angle, today’s focus will be on the release of FOMC meeting minutes covering the March monetary-policy announcement.

Even though our house view is for the minutes to offer low surprise potential, the minutes could still highlight some nascent concerns about the recent rapid rise in UST yields and the appreciation of the UST TWI.

Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.

High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 73% and 65% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.