Dollar holds firm after volatile week, yen in spotlight
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[April 22, 2024] By
Amanda Cooper
LONDON (Reuters) -The dollar held steady against the euro and the yen on
Monday after the most volatile week of trading for the currency market
in months, as investors assessed policy and geopolitical developments.
The market is laser-focused on the yen ahead of the Bank of Japan's
(BOJ) policy review on Friday.
The yen traded around 154.69 per dollar, a whisker away from last week's
34-year low of 154.79 and close enough to the 155-level that is next on
traders' radars for possible intervention by Japanese authorities.
"There will be a focus on the BOJ meeting, but it is too soon for them
to alter policy, and the market gives a change in rates no chance at
all," said Chris Weston, head of research at Pepperstone.
The dollar's trade-weighted index was above 106, but off the five-month
highs hit last week after comments from Federal Reserve officials and a
run of hotter-than-expected inflation data forced a paring back of rate
cut expectations.
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A cooling in Middle East tensions, which had driven the dollar, gold and
crude oil prices sharply higher on Friday and battered stock markets,
also helped temper volatility. Tehran downplayed Israel's retaliatory
drone strike against Iran, in what appeared to be a move aimed at
averting regional escalation.
Last week saw a big pickup in volatility. Deutsche Bank's index of
currency volatility rose 9.7% to its highest since February.
This was the biggest weekly rise in the index since September 2022, when
the pound crashed to record lows against the dollar after the UK
government's spending plans threw British markets into crisis, and as
the BOJ intervened to buy the yen for the first time since 1998.
Besides the BOJ meeting and one of the biggest weeks for U.S. earnings
releases, investors will also get U.S. first-quarter gross domestic
product data on Thursday and the inflation metric the Fed targets, the
personal consumption price expenditures (PCE) index.
"FX has been centre-stage for the last few weeks and might take a
backseat this week as earnings take centre-stage," XTB research director
Kathleen Brooks said.
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"The FX market can only think at one thing at a time and right now,
it’s obsessed with the strong dollar. So if we see any sign of any
kind of weakening in the U.S. economy, that’s what we’re waiting
for. But I don't think we're going to see it in the GDP report," she
said.
The strong dollar prevailed at last week's International Monetary
Fund/World Bank spring meetings in Washington too, and the United
States, Japan and South Korea issued a rare joint statement on the
issue.
Speaking after the Group of 20 (G20) finance leaders' meeting in
Washington, BOJ Governor Kazuo Ueda said the Japanese central bank
may raise interest rates again if the yen's declines significantly
push up inflation, highlighting the dilemma the weak currency has
become for policymakers.
The dollar has scorched higher against a range of currencies and yet
the yen has been the worst performing major this year, with losses
mounting to 9%.
The rethink on Fed easing has led to a general repricing of global
rate cut timelines, but expectations for the European Central Bank (ECB)
and the Bank of England (BoE) to start cutting by mid-year are still
intact.
Analysts do not see too much room for U.S. Treasury yields to rise
further, given the light economic data calendar for the rest of the
month and how far they have already risen as investors reprice Fed
expectations.
Two-year note yields have climbed 38 basis points this month to
five-month highs above 5.0%.
China's yuan slid to 7.2518 per dollar, its weakest since
mid-November, despite the central bank's daily benchmark guiding it
higher and support from state-owned banks.
Bitcoin was last up 2.2% at $66,071. The world's largest
cryptocurrency completed its "halving" at the weekend, a phenomenon
that happens roughly every four years and aims to reduce the rate at
which bitcoins are created.
(Additional reporting by Vidya Ranganathan in Singapore; Editing by
Jamie Freed and Mark Potter)
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