Dollar Soars on Hawkish Fed, Japan Shores Up Weakening Yen

2 Apr 2024 , 10:40 AM

Tuesday saw the US dollar stay close to a 4-1/2-month high versus key peers as traders hurried to retreat bets on the Federal Reserve’s first interest rate cut of the year.

The dollar remained at a six-week high against the euro and pound that was attained on Monday, following the surprising revelation that U.S. manufacturing had expanded for the first time since September 2022.

Fears of Japanese intervention restrained dollar gains versus the yen, despite the fact that long-term U.S. Treasury rates, which the currency pair usually tracks, increased overnight by more than 14 basis points to a two-week high of 4.337%.

Gold fell from a record top; the metal does best when yields are declining.

According to the CME’s FedWatch tool, the U.S. rate futures market now factors in 61.3% odds of a Fed rate drop in June, down from roughly 70.1% probability a week ago.

Referring to the dollar index, “the divergence of solid growth dynamics for the U.S. and waning Fed rate cut risk against sluggish growth for other FX majors suggests that any DXY dips should be seen as buying opportunities,” Richard Franulovich, head of currency strategy at Westpac, stated.

The dollar index, which compares the value of the dollar to the yen, euro, sterling, and three other currencies, increased by 0.02% to close at 105.02 on Monday after rising by 0.51% to reach a high of 105.07 on Monday.

The euro fell 0.08% to $1.0733, remaining near the 1.0731 low from the previous day. After falling as low as $1.2540 in the previous session, sterling was down 0.04% at $1.25455.

Tuesday saw a small increase in the value of the Japanese yen, which had fallen to 151.77 per dollar the day before.

It dropped to a 34-year low of 151.975 last week, prompting Japan to increase its intervention concerns. Shunichi Suzuki, the minister of finance, reaffirmed on Tuesday that he wouldn’t rule out any measures for responding to erratic currency movements.

When the yen fell to a 32-year low of 152 to the dollar in 2022, Japanese authorities took action.
Despite the Bank of Japan’s first interest rate increase since 2007, the yen has declined as a result of authorities’ caution about additional tightening in the context of a precarious transition away from decades of deflation.

In other news, the Australian dollar held steady at $0.6489 after plunging to a low of $0.64815 on Monday, almost a month ago.

The kiwi dollar in New Zealand decreased by 0.07% to $0.5949, moving closer to the overnight 4-1/2-month low of $0.59395.

Spot gold retreated from a record high of $2,265.49 in the previous session, but it rebounded by 0.11% to $2,253.09.

The most popular cryptocurrency, bitcoin, fell 0.87% to $69,158, but it was still comfortably within last week’s very small trading range.

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