What you need to know on Friday, April 29:
Despite a surprise drop in inflation-adjusted economic activity in the US in the first quarter of 2022 according to the latest GDP release, the US dollar advanced broadly on Thursday. The Dollar Index (DXY), a trade-weighted basket of major USD currency pairs, broke through its 2017 highs and came close to hitting 104.00, its highest level since December 2002. This was mainly due to a sharp sell-off in the yen that launched USD/JPY to new multi-decade highs at one point above 131.00. At current levels around 130.90, the pair looks set to post a gain of around 1.9%, its biggest one-day move since March 2020.
The catalyst for the yen’s latest leg down, in which all major G10/JPY pairs rose, not just USD/JPY, was the BoJ’s dovish policy announcement on Thursday. Unsurprisingly, the bank doubled down on its intention to stick to its ultra-loose negative interest rate and yield curve control policies for the foreseeable future given continued pessimism about its ability to deliver on its long-term inflation mandate. Some market commentators said this served as a “green light” for traders to continue selling yen.
On the other hand, most other major G10 currencies also continued to depreciate against the soaring US dollar. NZD/USD fell another 0.8% to fresh July 2020 lows below 0.6500, EUR/USD fell another 0.5% and briefly dipped below 1.0500 for the first time since March 2017, GBP/USD fell another 0.6% to 1.2450 and AUD/USD fell another 0.4% to test 0.7100. Expectations that the BoE and RBA will raise interest rates by 25 and 15 basis points each week next week, with the RBA motivated by hot first quarter inflation data out of Australia released earlier this week, have made little to stop the recent decline.
In fact, both hikes pale in comparison to the 50bp move expected from the Federal Reserve not only at next week’s meeting, but in the weeks to come. The CAD was the only major G10 currency that did not succumb to the US dollar’s gains on Thursday. USD/CAD pulled back from previous session highs near 1.2900 to trade slightly lower on the day near 1.2800 amid a surge in crude oil prices to their highest levels in over a week.
Source: Fx Street
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