Dollar Soars Above 136.00 JPY, 2023 Peak; US January PCE Up Sharply

US Yields Up; 2-Year Rate Jumps to 4.82%, Highest Since November

Summary:

A strong rise in US Personal Consumption Expenditures (PCE), up 0.6% in January following December’s 0.2% gain, lifted USD/JPY (Dollar-Yen) to 136.60 overnight and fresh 2023 highs. At the close of trade in New York on Friday, the Greenback settled at 136.25 JPY.

US Treasury yields rose with the 2-year rate jumping to 4.82% from 4.69%. The benchmark Ten-year bond yield climbed 7 basis points to 3.94% (3.87%). The data lifted expectations that the Federal Reserve will hike rates higher than previously anticipated.

A favourite gauge of the Greenback’s value against a basket of 6 major currencies, the Dollar Index (USD/DXY) rallied to 104.90 from 104.20, a gain of 0.73%. The DXY looks poised for a test of 105.00, strong resistance.

Sterling (GBP/USD) slumped to 1.1975 (1.2032) while the Euro (EUR/USD) fell 0.55% to 1.0548 (1.0602). The Kiwi (NZD/USD) tumbled 1.2% to 0.6165 from Friday’s 0.6232. The Australian Dollar (AUD/USD) slid to 0.6725 from 0.6812.

Against the Asian and Emerging Market currencies, the Dollar recorded strong gains. The USD/CNH pair (Dollar-Offshore Chinese Yuan) rocketed to 6.9800 from 6.9160 Friday. USD/THB (Dollar-Thai Baht) gained to 35.00 (34.70) while the Greenback rose to 1.3500 Singapore Dollars (1.3420).

US Stocks fell. The S&P 500 lost 0.63% to 3,967 (4,007). The DOW settled at 32,832 from 33,095. Other global shares fell. Australia’s ASX 200 dropped 0.6% to 4,250.

Other economic data released Friday saw US Personal Spending climb 1.8%, beating forecasts at 1.4%. US New Home Sales increased to 670,000 units from a previous 616,000. Revised University of Michigan Consumer Sentiment Index was up to 67 from 66.4.

• USD/JPY – Higher US treasury yields boosted the Greenback against the Japanese Yen to an overnight and fresh 2023 high at 135.67 from 134.85 Friday. The Dollar then settled at 135.00 at the close of trade in New York. Overnight low recorded was at 134.50.
• AUD/USD – The Australian Dollar (AUD/USD) wilted against the overall stronger Greenback, tumbling to 0.6725 from 0.6812. Overnight low traded for the Aussie Battler was at 0.6714 while the high recorded was at 0.6824 in choppy trade.
• GBP/USD – Sterling slumped against the Greenback to finish at 1.1975 from Friday’s open at 1.2032, down 0.78%. In volatile trade, the overnight high recorded was at 1.1978 while the low traded was at 1.1931, its lowest level in a week.
• EUR/USD – The shared currency fell 0.55% against the robust US Dollar to 1.0547 from 1.0602. The Euro traded to a low at 1.0537 before steadying in late New York. The overnight high recorded for the EUR/USD pair was at 1.0563.

On the Lookout:

This week keeps off with a light economic calendar. Just earlier, New Zealand released its Retail Sales (q/q) which fell -0.6% from a previous 0.6%, and lower than economist’s predictions at 0.2%. Quarterly Core Sales slumped -1.3% from 0.5% and lower than forecasts at 0.3%. Despite the fall, the Kiwi (NZD/USD) was little changed at 0.6170 from 0.6165 earlier.

Bank of England MPC member Broadbent is due to deliver opening remarks at the BOE Agenda for Research Conference in London (8 pm Sydney, 27 Feb). Canada releases its Current Account data for December (f/c unchanged at -CAD 11.0 billion from a previous -CAD 11.0 billion).The US rounds up today’s reports with its monthly January Durable Goods Orders (Headline f/c -4% from 5.6% - ACY Finlogix), US January Durable Goods Orders (excluding Transportation) – (f/c 0.1% from -0.1% - ACY Finlogix), US January Pending Home Sales (m/m f/c 1% from 2.5%, y/y f/c -28.0% from -33.8% - ACY Finlogix), and US February Dallas Fed Manufacturing Index (f/c -2 from -8.4 – ACY Finlogix).

Trading Perspective:

Boosted by a rise in US Treasury yields and growing expectations that the Fed will hike rates higher than previously anticipated, the US Dollar strengthened against all its Rivals. Led by the USD/JPY pair, the Greenback has the legs for further gains. Despite the risk of profit-taking, widening yield differentials in favour of the Dollar will continue to underpin the Greenback.

Watch those 2-year US bond rates, they will continue to drive the Greenback.

• USD/JPY – The Dollar Yen pair, which is most sensitive to moves in US Treasury yields did not disappoint. Overnight the Greenback rocketed to fresh 2023 highs, at 136.60 before settling lower to close at 136.25. Today, look for immediate resistance to cap at 136.60 and 137.00. Immediate support can be found at 136.20 and 135.70. A pullback could take USD/JPY back to 135.50 before another upside attempt. Look for a choppy start with a likely range today of 135.75-136.75. Trade the range.
• EUR/USD – The shared currency dipped against the US Dollar to 1.0547 from 1.0602 Friday. Look for immediate support at 1.0535 (overnight low traded was 1.0537). The next support level lies at 1.0510 followed by 1.0480. Immediate resistance lies at 1.0580, 1.0610 and 1.0640. Look for the Euro to consolidate today in a likely range between 1.0520 and 1.0590.
• AUD/USD – Against the overall stronger Greenback, the Aussie Battler (AUD/USD) slid to 0.6725 from 0.6812 Friday. Overnight, the AUD/USD pair traded to a low at 0.6714 before steadying to 0.6725 in late New York. Immediate support for the AUD/USD pair lies at 0.6710 followed by 0.6690. Immediate resistance can be found at 0.6760 and 0.6790. Look for the Aussie to trade heavy in a likely range today between 0.6700-0.6800. Prefer to buy dips, the speculative shorts are building.
• GBP/USD- Sterling fell under the weight of the stronger US Dollar, finishing at 1.1975 from Friday’s open at 1.2032. In volatile trade of its own, the overnight low traded was at 1.1931. The high recorded was at 1.1978. In Asia this morning, Sterling slid to its current 1.1950. Look for the Pound to stay pressurised in a likely range today of 1.1920-1.1990. While the British currency trades heavy, the shorts are building, would be wary of a pullback.

All eyes on the Fed as we begin another riveting week in FX. The Greenback keeps its bid as expectations rise for more policy tightening from the US central bank. With the Dollar Index (USD/DXY) climbing to its highest level in seven weeks, there is a likelihood for a pullback.

Have a good Monday start and profitable trading week ahead all.