The US dollar strengthened markedly overnight as US bond yields firmed after Mr Powell disappointed the doves. The dollar index rose through its 100-DMA on its way to a 0.75% gain to 91.63. Although unchanged in Asia, the index is poised to break resistance a hairs-breath away at 91.65 later today. That would target further increases to 92.25.
Among the majors, EUR/USD has fallen to support at 1.1960, and a close below here tonight signals more losses to 1.1800 next week. GBP/USD fell to 1.3900, with multi-month channel support at 1.3800 still some way off. That needs to break to telegraph a much deeper correction. By contrast, USD/JPY rose 100 points to 108.00 overnight as the US/Japan yield differential widened. Although overnight on a short-term basis, some consolidation here sets the scene for a rally to 110.00 next week.
Both the Australian and New Zealand dollars broke supports overnight. With commodity prices except for oil in retreat overnight as well, both Antipodeans could potentially fall another 200+ points into early next week.
Asian currencies have given ground to the dollar overnight but have steadied in Asia along with local equity markets. The PBOC set a much higher USD/CNY fixing at 6.4904 this morning, but the USD/CNY spot has not followed suit, trading at 6.4725. The positive economic noises coming from the NPC in Beijing today, have limited the fallout from the US dollar rally yesterday. Next week, a move above 6.5000 could crack investors resolve on the Asian currency front, with the IDR/USD and Philippines being the most vulnerable regional currencies.
The rise in US yields which apparently has been given a green light by Chairman Powell will be of some concern in Asia. Most of the region runs direct or dirty pegs to the US dollar; the rise in US yields means that parts of Asia will be forced to tighten into what is still-muted domestic demand across the region. Either that or allow their currencies to depreciate.