Dollar edges up after pullback amid caution as finance ministers meet

The dollar edged up on Thursday supported by expectations for aggressive Federal Reserve monetary tightening, but was well off the previous day’s peaks amid nervousness about what a gathering of finance ministers might say about its rapid appreciation.

The greenback added 0.08% to 128.335 yen, at one point hitting a two-decade high of 129.430 overnight as the Bank of Japan (BOJ) stepped in to the bond market for the third time in three months to defend its zero-percent yield target, drawing a stark contrast with the Fed’s increasingly hawkish posture.

However, the dollar index — which measures the currency against six peers including the yen — ticked down 0.46% to 99.93, following its retreat in the previous session from a more than two-year peak of 101.03.

Also allowing the dollar to ease overnight, benchmark Treasury yields pulled back from the highest level since December 2018 at close to 3%, as dip buyers emerged. Those yields, though, also inched higher in Tokyo trading on Thursday.

“Few central banks will match the Fed this year for policy hikes and balance sheet retrenchment, making for a dramatic policy differential in the USD’s favour,” Westpac strategists wrote in a client note.

The dollar index “should remain bid in this environment, with talk of 101-102 likely to increase near term,” they said.

San Francisco Fed President Mary Daly said on Wednesday she believed the case for a half-percentage-point rate hike next month is “complete” and “solid”, adding to recent comments from other Fed officials backing bigger rate increases.

Markets are currently priced for half-point increases in both May and June.

By contrast, the BOJ on Wednesday offered to buy unlimited amounts of10-year Japanese government bonds for four consecutive sessions as yields bumped against the 0.25% maximum leeway around its zero-percent target, showing its commitment to ultra-easing stimulus settings ahead of its policy meeting next week.

BOJ Governor Haruhiko Kuroda has stuck to the view that a weak yen is overall good for the economy, but admitted earlier this week that moves had been “quite sharp” and could hurt Japanese companies’ business plans.

Finance Minister Shunichi Suzuki has been more categorical, saying on Tuesday that the damage to the economy from a weakening yen at present is greater than the benefits, in his strongest statement yet.

He is due to meet U.S. Treasury Secretary Janet Yellen this week on the sidelines of the Group of 20 financial leaders’ gathering in Washington D.C., prompting traders to pare back bearish yen bets on the potential for stronger rhetoric on the currency.

Japanese policy makers “have not fully utilized their verbal intervention toolkits yet — the next phase would typically involve describing moves as ‘speculative’ and threatening to ‘take decisive action,’” Adam Cole, chief currency strategist at RBC Capital Markets, wrote in a research note.

“If we get to that point, the hurdle for the next logical step of physical intervention may be lower than generally perceived.”

But on whether intervention would work, he said it “could restore some short-term balance to markets and manage the pace of JPY depreciation (but) longer-term, there is no prospect of the BOJ mopping up all of the JPY selling we anticipate from within Japan as the Fed hiking cycle gets properly underway.”

Elsewhere, the euro eased 0.11% to $1.08425, while sterling slipped 0.14% to $1.30555.

The Australian dollar retreated 0.20% to $0.7436.

The New Zealand dollar sank 0.40% to $0.67755, hurt by softer-than-forecast consumer price data.

Nothing stops yen slide as it falls to fresh 20 year low

The Japanese yen hit a 20-year low against the dollar on Tuesday, supported by high U.S. Treasury yields and likely comparatively good U.S. economic data this week.

The dollar rose 0.37% on the yen to 127.44 yen in early trade, its highest level since May 2002.

It has risen 4.5% on the Japanese currency so far this month, which would be its second-biggest monthly percentage gain since 2016 behind March’s 5.8%.

The dollar was also firm against most other currencies and the dollar index was at 100.8, just off Monday’s two-year high of 100.86.

“I think the broad dollar trend reflects U.S. economic outperformance, while we’ve seen some initial impacts of higher energy prices from the Ukraine war elsewhere, especially in the euro zone,” said Carol Kong, FX strategist at Commonwealth Bank of Australia.

She added that she was watching purchasing manager index data due in several markets on Friday.

“If we get weak PMI numbers in the euro zone or elsewhere, then markets could potentially downgrade their economic expectations but I don’t think the US PMI will be particularly weak so we’ll see some contrast there, which would probably support the dollar,” she said.

“Of course, the big driver for dollar yen has been surging U.S. bond yields.”

The benchmark U.S. 10-year Treasury yield on Tuesday was hovering just off its three-year high of 2.884% hit Monday, while the Bank of Japan has been intervening to keep the yield on Japanese 10 year government bonds around 0% and no higher than 0.25%.

Japan was watching how the weakening yen may affect the economy, as stability in the currency market was important, Finance Minister Shunichi Suzuki said on Tuesday, reiterating earlier remarks by several politicians and officials.

The euro was at $1.0776, testing last week’s two-year low of $1.0756, and sterling was also soft at $1.3006, not helped by the latest fighting in Ukraine.

Ukraine said Russia had started an anticipated new offensive in the east of the country.

Elsewhere, the Australian dollar edged up from Monday’s one-month low and was at $0.7355.

Bitcoin also managed to find its feet, trading around $40,800 on Tuesday after hitting a one-month low of $38,547 on Monday.

Investors snap up dollar on hawkish Fed views; yen slumps past 126

The Japanese yen weakened past the 126 yen per dollar mark on Wednesday for the first time since 2002 while the euro was pinned at a one-month low as investors flocked to the U.S. currency after some hawkish comments by Federal Reserve officials.

Though U.S. monthly underlying inflation pressures showed some signs of moderation in Tuesday’s data, traders ramped up bets that the U.S. central bank will accelerate its monetary tightening measures this year.

Also weighing on the euro was Russian President Vladimir Putin’s description of on-and-off negotiations to end the war in Ukraine as “a dead-end situation” on Tuesday.

In addition, German lawmakers called for an embargo on Russian oil as soon as possible, which if implemented would further weigh on the region’s growth prospects.

“The dollar will continue to do well versus the low yielders such as the euro and the yen,” said Kenneth Broux, an FX strategist at Societe Generale in London.

“In contrast to German bond yields, the pre-ECB bounce in the euro isn’t happening,” Broux said referring to the European Central Bank’s meeting on Thursday.

Against a basket of six major currencies, the dollar edged 0.1% up to 100.52, its highest levels since April 2020. It has gained nearly 3% so far this month and is on track for its biggest monthly rise in nine months.

The yen led losers against the dollar with the Japanese unit weakening 0.5% to cross the 126 yen to the dollar level for the first time since May 2002.

Elsewhere, the kiwi was buffeted after the Reserve Bank of New Zealand announced its sharpest rate hike in two decades to curb inflation.

While the 50 basis point rise by was larger than many economists had expected, it was within traders’ expectations, and policymakers tempered the move by not lifting their projected peak for rates.

The euro fell to $1.0821 overnight, its lowest level against the dollar in more than a month and hovered nearby at $1.0826 in early London trading.

The Australian dollar and the offshore Chinese yuan weakened slightly after a surprise plunge in China’s imports added to investor worries about weakening demand.

Dollar index back above 100 ahead of expected red-hot U.S. inflation data

The dollar index was back above 100 on Tuesday morning, supported by high U.S. yields ahead of inflation data that is expected to show U.S. prices gained the most in over 16 years, reinforcing expectations of aggressive Fed tightening policy.

The index stood at 100.11, testing last week’s near two-year high of 100.19.

The dollar’s gains have been most striking against the yen, and it was trading choppily at 125.47 yen on Tuesday morning, just off the overnight intraday high of 125.77, when it neared its June 2015 peak of 125.86. A move past that level would take the dollar to its highest against the yen since 2002.

Japanese Finance Minister Shunichi Suzuki on Tuesday declined to comment on specific prices in foreign exchange markets, but said excess volatility and disorderly movements could have an adverse effect on the economy and financial stability.

The dollar also gained steadily overnight on the offshore Chinese yuan, and reached a two-week high of 6.390 in early trade.

The dollar’s strength “was most apparent against JPY and CNH – currencies of economies with a dovish central bank,” said analysts at CBA in a morning note.

The Bank of Japan has repeatedly intervened to keep benchmark bond yields around zero.

CBA analysts said they expected very high U.S. inflation would reinforce expectations of aggressive Federal Reserve tightening. They said that because a 50 basis point rate hike was not yet fully priced in for each of the next two Fed meetings, they expect further gains for the dollar.

“We expect the dollar to stay bid and lift to the pandemic high of 103 pts in coming months.”

U.S. consumer prices likely increased by the most in 16-1/2 years in March, according to a Reuters poll of economists as the war in Ukraine boosted the cost of gasoline to record highs.

Meanwhile U.S. longer term yields continued their march higher.

The yield on benchmark 10 year notes rose to 2.836%, its highest since December 2018. If Tuesday’s early advance holds it would be the eighth straight session of gains for benchmark yields.

The yield on the 30-year Treasury bond rose to 2.86%, its highest since May 2019.

Elsewhere, the euro was unable to hold onto gains from its mini-relief rally on Monday after French leader Emmanuel Macron beat far-right challenger Marine Le Pen in the first round of presidential voting.

It was last at $1.087 little changed from its Friday close.

“The bottom line, then, is that we are where we were before yesterday’s vote,” said Rabobank analysts.

“Macron looks set to return to office following the April 24 vote but the scale of his victory is likely to be far smaller than when he was seen as an upstart five years ago and likely slim enough that the political earthquake that would be a Le Pen victory cannot be entirely discounted.”

The Australian dollar was on the back foot at $0.7403, as lower oil prices weighed on the commodity-linked currency. The New Zealand dollar was also lower at $0.6807, ahead of a closely watched meeting by the Reserve Bank of New Zealand at which a 50 basis point rate hike is on the cards.

Sterling inched lower to $1.30155.

U.S. dollar hits highest in nearly two years on expected rate increases

The dollar surged to a nearly two-year high on Wednesday after minutes of the last Federal Reserve meeting reinforced expectations of multiple half percentage-point rate increases to control soaring inflation.

The dollar index, which measures the greenback’s value against six major currencies, climbed to 99.7780 , its strongest level since late May 2020. It was last up 0.2% at 99.70.

Fed officials viewed the hefty rate increases as appropriate at future meetings, especially if inflation pressures intensify, minutes showed. They would also have preferred a 50 basic point rise in the target range for the federal funds rate at the March meeting.

“There’s a realization that some of the doves have come over to the 50 basis point hike territory and that is likely what we’re going to see at the next several meetings going forward as inflationary pressures remain elevated,” said Ryan Detrick, chief market strategist at LPL Financial in Charlotte, North Carolina.

“The Ukraine conflict uncertainty likely prevented a 50 basis point hike last month, so it could put a little cold water on extremely hawkish policy. But still, we know multiple hikes are coming very soon,” he added.

Fed officials also agreed to reduce the balance sheet by $95 million per month – $60 billion of its Treasury holdings and $35 billion of mortgage-backed securities – over three months, according to the minutes of the March meeting.

Analysts at Action Economics said the $95 billion balance sheet run-off was close to expectations of $100 billion per month.

The U.S. currency also hit the nearly two-year milestone on Tuesday after Fed Governor Lael Brainard, usually a more dovish policymaker, said she expected a combination of rate increases and a rapid balance sheet runoff to bring U.S. monetary policy to a “more neutral position” later this year. Further tightening would follow as needed, she added.

Analysts said the Fed minutes were less hawkish than Brainard’s comments.

The dollar held gains against the yen, which tracks U.S. two-year yields reflecting Fed policy expectations, traded slightly higher at 123.78.

Aussie pops on hawkish RBA tilt, euro wallows on sanction worries

The Australian dollar jumped to a nine-month high on Tuesday after the country’s central bank signaled higher interest rates were closer, while the euro languished near a one-week low amid talk of more sanctions against Russia.

The Aussie was up 1.15% at $0.7629, its strongest since late June, after the Reserve Bank of Australia dropped its pledge to be “patient” on tightening policy, while holding the key rate at a record low for now, as was widely expected.

“The RBA dropped its ‘patience’ narrative from the forward guidance for hiking, so what it means is the RBA is going to hike some time in the next few months,” most likely in June, said Joseph Capurso, a strategist at Commonwealth Bank of Australia.

“Aussie is comfortably going through that 75.40-cent resistance level, so we think it’s going to head closer toward 77 cents over the next few months,” although it may pause at 76 cents for now, he said.

The euro was little changed at $1.0972 after dropping as low as $1.0960 in the previous session for the first time since March 28. It had reached a one-month high of $1.1185 just days earlier amid increased optimism for an end to the Ukraine conflict.

The United States and European countries pledged on Monday to punish Moscow over civilian killings in northern Ukraine, where a mass grave and tied bodies of people shot at close range were found in a town seized back from Russian forces.

New sanctions could include restrictions on the billions of dollars in energy that Europe still imports from Russia. The Kremlin denied accusations related to the murder of civilians.

The euro’s woes boosted the dollar index, which held near a one-week high of 99.083 reached overnight. It last stood at 98.93.

Gold slips as yields climb, faces weekly drop

Gold eased on Friday and was headed for a weekly fall, as higher Treasury yields dented the appeal of zero-yield bullion, with a stronger dollar adding further pressure.

Spot gold was down 0.2% at $1,934.01 per ounce. U.S. gold futures fell 0.8% to $1,937.90.

“It is in particular the developments in the fixed income markets with yields rising again,” that are pressuring gold, said Quantitative Commodity Research analyst Peter Fertig.

Yields on the benchmark U.S. 10-year Treasury note rose back above 2.4% on Friday after dropping to a one-week low in the previous session. Higher yields increase the opportunity cost of holding gold, which yields nothing.

The U.S. dollar firmed for a second straight session, making greenback-priced gold less appealing.

Gold is on course to end the week about 1.4% lower, having dropped earlier this week on signs of progress in talks between Russia and Ukraine. Negotiations aimed at ending the five-week war were set to resume even as Ukraine braced for further attacks in the south and east.

A key U.S. jobs report that could help the Federal Reserve decide whether to order an interest rate hike of up to 50 basis-points next month is due later on Friday.

“A downside surprise on employment and earnings should not dent market rate hike pricing for 2022, with the Fed shifting to inflation-fighting mode,” said Stephen Innes, managing partner at SPI Asset Management in a note.

“By contrast, a beat on jobs data would add weight to the idea that the U.S. economy has more underlying momentum than the Fed previously assumed.”

Dollar falls, euro gains, as FX markets become less worried about Ukraine

The dollar fell and the euro gained on Wednesday as markets took a positive view on peace talks in Ukraine, while the Japanese yen recovered from seven-year lows as traders speculated that officials were uncomfortable with its recent weakness.

Equity markets were up in the Asian session, continuing a pick-up in sentiment in Wall Streets as markets became hopeful that the Ukraine conflict could end – although this move ran out of steam as European shares opened in the red.

Russia promised on Tuesday to reduce its attack on Kyiv, but the United States said it had not seen “signs of real seriousness” from Russia in pursuing peace.

The dollar extended its losses on Wednesday, as investors changed their mind on their defensive bets.

The dollar index was down 0.5% on the day at 97.90, having touched a 12-day low in early European trading.

The euro rallied against the dollar, with the pair up 0.5% at $1.1145.

Heavily sold on fears of the economic fallout from the war in Ukraine and nerves about the risk of the conflict spreading west, the euro has been a beneficiary of hopes for peace.

“Markets appear to have taken an optimistic stance well before peace talks have yielded any result,” ING FX strategists wrote in a note to clients.

“The FX market may be increasingly detached from trading the Russia-Ukraine situation and start to catch up with the wide moves in rate and growth differentials, all of which point to a stronger dollar.”

Investors expect the U.S. Federal Reserve, which raised rates by 25 basis points at its March 16 meeting, to be more hawkish than the European Central Bank, driving the dollar higher against the euro.

Philadelphia Federal Reserve President Patrick Harker said on Tuesday he favored a “methodical” series of quarter-percentage-point interest rate increases, but is open to larger half-percentage-point hikes if inflation does not soon show signs of easing.

The U.S. Treasury yield curve, widely watched as a barometer of the economy’s health, briefly “inverted” on Tuesday in a warning sign bond investors see a recession on the horizon.

In Europe, investors are watching for inflation data. Spain’s flash CPI data for March showed prices rising at their fastest since May 1985.

The yen staged a recovery from its recent seven-year lows, after a meeting between Bank of Japan (BOJ) Governor Haruhiko Kuroda and Prime Minister Fumio Kishida added to speculation about the level of official discomfort with a falling yen.

“While the comments from Japanese officials overnight are unlikely to reverse the yen weakening trend on their own, they should at least help to slow the recent fast pace of yen selling that has been evident over the last couple of weeks,” wrote MUFG analyst Lee Hardman in a note to clients.

The yawning gap between a hawkish Federal Reserve and a dovish Bank of Japan has driven the yen’s drop and on Wednesday the BOJ extended bond purchases along the curve as part of its effort to defend a 0.25% 10-year yield target.

The dollar was down 0.8% on the day versus the yen, at 121.86, compared with the pair’s recent high of 125.105 hit on Monday.

Yen tumbles as Bank of Japan intervenes to keep bond yields pinned down

The Japanese yen slipped to a six-year low on Monday, after the Bank of Japan stepped into the market to stop government bond yields from rising above its key target, while bitcoin jumped to nearly its highest this year.

The BOJ, on Monday morning offered to buy unlimited amounts of 10-year Japanese government bonds (JGBs) at 0.25%, after the 10-year JGB yield crept up to a six-year high of 0.245%.

The dollar rose to as high as 123.1 yen in morning trade, its strongest since December 2015, and was last at 122.9, up 0.7% on the day. It has climbed nearly 6% on the yen in the last 12 sessions.

“The market sees monetary policy divergence between the U.S. and Japan as the key driver of dollar-yen, so in contrast to the hawkish Fed comments recently, the (BOJ’s action) gives the impression that the BOJ remains dovish, and that’s leading to a higher dollar-yen,” said Shinichiro Kadota, senior currency strategist at Barclays in Tokyo.

“I think the risk is still to the upside in the near term, especially if this monetary policy divergence story stays intact. But the speed has been quite fast and it does seem a little overheated, so if we see any contrary headlines, we could see some correction as well,” he added.

The 10-year Treasury’s yield was last 2.5046%, having jumped 33 basis points last week.

High commodity prices are also hurting the yen as they contribute to a widening of Japan’s trade deficit, though at the same time they have provided a powerful impetus to commodity currencies.

The Aussie dollar was at $0.752 holding near last week’s four-month high, while the Canadian dollar was at 1.249 per dollar, just off Friday’s two month peak.

Aussie currency watchers are also looking out to Australia’s budget on Tuesday. Australia’s Treasurer said on Sunday the budget would mark a very significant material improvement to the government’s bottom line.

One possible headwind for the Aussie is the COVID-19 situation in China, after Shanghai said on Sunday it would lockdown the city to carry out COVID-19 testing.

The dollar climbed as much as 0.24% on the offshore yuan on Monday morning to 6.3986, before paring gains.

The euro was last at $1.0956, down 0.25% having edged slightly lower in recent days, still under pressure because of the economic impact of the war in Ukraine.

“The balance of risks suggests EUR/USD may test 1.0800 in coming weeks,” said analysts at CBA.

Inflation figures from major European economies and the eurozone are due from Wednesday, and “the European Central Bank is in a bind with growth headwinds and very high inflation,” CBA said.

Sterling was 0.19% softer at $1.3157.

The dollar index was 0.23% higher at 99.079.

Also potentially driving the dollar this week is Friday’s non farm payroll data in the U.S., though given the market is already positioned for an aggressive pace of rate hikes this year, its effect could be muted say analysts.

In cryptocurrency markets bitcoin was sitting pretty around $46,900 after jumping to as high as $47,766 in early trading, its highest level since early January.

Ether, the world’s second largest cryptocurrency, was at $3,320.

Yen slides through 120 as U.S. hike path steepens

The dollar was buttressed by new bets on U.S. rate hikes on Tuesday, while investors unloaded yen and sent it spearing below the psychological 120 level as the Bank of Japan looks increasingly isolated in its dovish policy stance.

The yen fell 0.8% and hit a six-year low of 120.46 in the Tokyo afternoon, having lost more than 4% on the dollar this month as leaping U.S. yields and a deteriorating trade balance suck cash from the world’s third-biggest economy.

Yen crosses also suffered, with the euro making a five-week high of 132.33, while the Japanese currency slumped to a four-year low on the Aussie and a 6-1/2 year low on the Swiss franc.

Japan must maintain ultra-loose monetary policy lest inflation hurt the economy, BOJ Governor Haruhiko Kuroda said on Tuesday — a stark contrast with hawkish overnight comments from Federal Reserve Chair Jerome Powell.

“Rising energy prices and higher U.S Treasury yields are both bad news for the Japanese yen,” said analysts at Singapore’s UOB in a quarterly outlook note that lifted their year-end dollar/yen forecast from 119 to 121.

Powell had sent U.S. yields to multi-year highs by putting the possibility of 50 basis point (bp) rate hikes on the table.

Fed funds futures moved to price in a 2/3 chance of a 50 bp hike in May and now anticipate the benchmark rate — currently below 0.5% — exceeding 2.5% in 2023.

Two-year, five-year, 10-year and 30-year Treasury yields all stood at their highest since 2019 on Tuesday, widening the gap on pinned Japanese yields while lending the dollar broad support elsewhere.

The euro was down 0.2% to $1.0988. The Aussie and kiwi each dipped 0.1%.

The U.S. dollar index rose 0.2% to 98.700. Sterling eased 0.2% to $1.3144.

The Chinese yuan was also under some pressure and has pulled back from early-month highs as investors await promised monetary easing. It last traded at 6.3648 per dollar onshore.

“Although the Chinese central bank left 1-year and 5-year loan prime rates unchanged … on Monday, we still expect the (People’s Bank of China) to lower the reserve ratio requirement by 50 bp again, as early as Q1 2022,” Scotiabank strategist Qi Gao said. “We maintain our short USD/CNH spot position.”

Cryptocurrencies were bid on Tuesday with bitcoin up 5% at a three-week high of $43,337.