We are entering the European session with the dollar under pressure, but that comes after what has been a relentless rise so far this month and especially so against the single currency. We’ve marked a 1.0495 low on EURUSD in overnight trading and as we highlighted yesterday, the risks of some sort of rebound were growing given the price action seen over recent days. The dynamics underlying the single currency have been done to death, but the question for markets is how far they can still run. Furthermore, the relentless rise of the dollar also poses a dilemma for the Fed in terms of its desire to raise rates around mid-year as it bears down on inflation and impinges on the ability of exporters to remain competitive. This could be a factor worth keeping a keen eye on over the coming few months.
For today, the pace of the dollar reversal suggests that more corrective activity could be in store. We’re seeing cable close back to the 1.50, from the low just below the 1.49 level. We’re also seeing the same on AUDUSD, with USDJPY close to 121.00, from a recent high of 122.03. Overnight, we’ve seen tine New Zealand central bank keep rates on hold at 3.50%, as broadly expected. Together with the weaker dollar tone, this has supported the recovery back to the 0.74 level.