The U.S. Dollar Retreats

US dollar dips as inflation concerns ease

The US dollar headed south overnight, unable to hold onto recent gains as inflation fears temporarily subsided as the bond passed without incident, and a fall in US turned attention back to recovery. The fell 0.44% to 91.45, although dollar short-covering has lifted it back to 91.55 in Asia.

negotiated the ECB with aplomb, rising 0.45% to 1.980 overnight, and is seemingly out of the woods for now. A similar story has played out with and . The under-pressure Australian and New Zealand dollars also rallied overnight; both are testing their respective downside breakouts at 0.7805 and 0.7230 today. A close tonight above these levels by and will conclude their downward corrections for now.

Asian currencies rallied strongly overnight in the general risk-on environment, as the Wall Street price action alleviated the pressure on their dirty pegs to the greenback. Today some profit-taking is evident in Asia, with the , , and all falling. Still, net-net, regional currencies, including the yuan, have booked impressive gains over the last 24 hours.

The US dollar short-squeeze looks to have run its course in the short-term, with the FOMC dot plots next Wednesday in New Year the next hurdle currency markets have to negotiate. A revision of interest rate increase expectations forward will likely see dollar strength return.

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