Currencies Take a Breather After Week of Turmoil

22 Apr 2024 , 10:46 AM

In early Asian trade on Monday, the euro and yen held stable, while the US dollar remained close to its peak following the chaotic policy and geopolitical events of the previous week.

With the Bank of Japan's (BOJ) Friday policy review the big event on the economic calendar, all eyes will be on the yen this week.

The yen fell to 154.70 per dollar, not far off the 34-year low of 154.79 set last week, and near enough to the 155 mark that traders are watching closely for potential Japanese government intervention.

The trade-weighted index of the dollar was above 106, although it was down from five-month highs reached last week due to remarks made by Federal Reserve officials and a string of higher-than-expected inflation statistics that drove a retreat of rate cut expectations.

Reduced Middle East tensions, which on Friday caused the dollar, gold, and crude oil prices to spike significantly higher and rock the stock markets, also contributed to reducing volatility. In an apparent effort to prevent a regional escalation, Tehran played down Israel's counterattack drone strike against Iran.

At the World Bank/IMF spring meetings in Washington last week, the dollar held its strength, and the US, Japan, and South Korea released an unusual unified statement on the subject.

Governor of the Bank of Japan Kazuo Ueda highlighted the conundrum the weak currency has become for policymakers when he indicated, following the Group of 20 (G20) finance chiefs' conference in Washington, that the Japanese central bank may hike interest rates again if the yen's losses significantly drive up inflation.

With losses reaching 9%, the yen has been among the worst performers versus the dollar this year.

The European Central Bank (ECB) and Bank of England (BoE) are still expected to begin rate cuts by the middle of the year, despite the fact that the rethinking of Fed easing has resulted in a widespread repricing of global rate cut timetables.

Like ECB President Christine Lagarde had hinted at last week, policymaker Madis Muller of the central bank said on Friday that if inflation behaves as expected, the bank may cut interest rates "a few more" times by the end of the year after making its initial move in June. However, Muller did not precommit to any particular rate path.

However, Robert Holzmann of the ECB stated that if the Fed does not act, the ECB most likely will not reduce rates this year as much as anticipated.

BoE Governor Andrew Bailey and Deputy Governor Dave Ramsden hinted at the anticipated slowdown in British inflation last week. The low point for sterling in mid-November was $1.2367 on Friday. The last price was $1.2383.

Given the sparse schedule of economic data for the remainder of the month and the extent to which yields have already increased as investors reassess Fed expectations, analysts do not believe there is much more potential for U.S. Treasury yields to rise.

This month, rates on two-year notes increased by 38 basis points, reaching a five-month high of over 5.0070%.

t $64,832, Bitcoin was up 1% as of late. The "halving" of the biggest cryptocurrency in the world, which takes place about every four years to slow down the creation of new bitcoins, was finished over the weekend.

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