In a Tale of Two Central Banks, the Dollar rises and the Yen falls.
The dollar rose slightly against the Japanese yen on Monday morning in Asia, reaching as high as 119.3 yen, threatening the six-year high of 119.39 reached on Friday.
By 11:47 p.m. ET, the U.S. Dollar Index, which measures the value of the dollar against a basket of other currencies, had risen 0.05 percent to 98.278. (3:47 AM GMT).
With Japanese markets closed for the holiday, the USD/JPY pair rose 0.01 percent to 119.19.
The Australian dollar fell 0.19 percent to 0.7401, while the New Zealand dollar rose 0.04 percent to 0.6905.
The USD/CNY exchange rate increased by 0.04 percent to 6.3640, while the GBP/USD exchange rate fell by 0.16 percent to 1.3159. On Monday, the yen continued to fall, while the Australian and New Zealand currencies remained strong. Throughout the week, a wave of global central bank policymakers, including US Federal Reserve Chairman Jerome Powell, will speak.
The dollar will rise against the yen in the next months as the interest rate differential between the United States and Japan increases, according to CBA strategists.
“The inflation dynamics in Japan are considerably different from those in the other major nations we track. As a result, we believe the Bank of Japan (BOJ) would take a long time to leave its ultra-easy monetary policy “They also noted. BOJ maintained its dovish stance when it announced its policy decision on Friday. This was in contrast to the Fed’s policy of raising interest rates the previous Wednesday.
CME’s Fed watch forecasted a roughly 90% possibility of at least 75 basis point rises at the Fed’s May and June 2022 meetings. The dollar rose quickly in the early part of this year as a result of such lofty expectations, but some investors believe it will struggle to gain further as many Fed rises have already been priced in.
“Given the already-hawkish market expectations of Fed tightening, it’s difficult to see greenback strength lasting beyond the near term,” Barclays (LON: BARC) analysts said.
In addition, the yen fell to a four-year low versus the riskier Australian dollar, which has benefited from recent commodities price increases.
The Fed’s hike cycle is already priced in, and the current improvement in global risk sentiment, which normally supports risk-friendly currencies, might lead to more rises, according to the Barclays strategists.
The euro was trading at $1.1044, with the war in Ukraine influencing the single currency’s and pound’s futures. Speeches by European Central Bank leaders, notably president Christine Lagarde, might potentially be influential. Following Russia’s incursion on February 24, fighting has continued in Ukraine. Russia demanded that Ukraine lay down its armaments in Mariupol, but Ukraine reiterated that abandoning the city was not an option.