The currency-weighted US dollar index (DXY) continues to push upwards, nearing the 100 mark for the first time since May 2020, boosted by the Federal Reserve’s (the Fed’s) increasingly hawkish stance. The Fed is now eager to raise rates swiftly and put a stop to the monetary stimulus.
The euro (EUR) comes from six straight days of declines and today opened the session in the red by falling below the support of $1.09. Such a negative streak for the single currency has not been seen since October 2020.
The Japanese yen (JPY) continues to be trapped in a storm, with the USD/JPY pair returning above the 124 area, close to all-time highs after five straight days of gains. The fundamental reason for the yen’s decline is a steep rise in US Treasury yields, which is compounded by the Bank of Japan’s (BoJ’s) continued ultra-expansionary policy.
All major currencies are weaker versus the dollar today, with the exception of the Norwegian krone (NOK), which is up 0.5% on the day, as the prospect of a total ban of Russian oil and gas imports gained traction in the EU, benefitting alternative suppliers such as Norway.
Is the US dollar index (DXY) likely to hit 100?
Geopolitics, China’s lockdowns and central bank policies are once again the main drivers of market-risk sentiment.
NATO nations decided this morning to increase their assistance for Ukraine by delivering more weapons to aid them in the conflict against Russia. There is a risk of negative headlines from the Kremlin in the coming hours, which could weigh on risk sentiment.
China has stepped up its lockdowns in Shanghai, a city of 25 million people, which represents for about 4% of Chinese oil demand, leaving the global oil market flailing yesterday. West Texas Intermediate crude (WTI) prices fell to $95 a barrel before rebounding to $96.4, as of the time of writing. Brent oil prices fell below $100 before turning to $101.
Meanwhile, concern is increasing about the Fed’s rate rises and the start of quantitative tightening, a program to decrease assets – including US Treasuries – off the balance sheet at a rate of 95 billion per month.
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Yesterday, St Louis Fed President James Bullard, one of the most hawkish members in the board, said interest rates could hit 3.5% by year-end.
Chart of the week: USD/JPY is the best major pair in April
Forex markets today – April 8, 2022
- In London’s morning trade, the US Dollar Index (DXY) traded at 99.74, up by 0.1% on the day after six straight sessions of gains.
- The euro (EUR) traded below $1.09, flat on the day. The British pound (GBP) edged marginally down by 0.2% to $1.304.
- Low-yielding safe-haven currencies, such as the Japanese yen (JPY) and the Swiss franc (CHF), both fell 0.1% amid stronger US Treasury yields.
- Among oil-linked currencies, the Canadian dollar (CAD) held steady, while the Norwegian krone (NOK) strengthened by 0.4% amid expectations stronger oil and gas demand from Europe.
- The commodity-linked Australian dollar (AUD) continues to remain under pressure due to the worsening risk sentiment. The AUD fell 0.3% vs the USD. The New Zealand dollar (NZD) was also down by 0.5%.
- Central Eastern European (CEE) currencies such as the Polish zloty (PLN), the Hungarian forint (HUF) and the Czech koruna (CZK) were broadly stable.
- The Russian ruble (RUB) was little changed after the Central Bank of Russia (CBR) announced its intentions to slash interest rates by 300 basis points (bps) to 17% this morning to ease pressures on the economy. The RUB has been the best-performing currency this week, climbing as much as 7% versus the USD.
- Emerging market (EM) currencies were only a tad lower against the USD.
In Asia, the Korean won (KRW) lost 0.3%, while the Chinese yuan (CNH) fell 0.1%. The Turkish lira (TRY) is down 0.1%. The Mexican peso (MXN) fell 0.1%. A notable expection is the South African rand (ZAR), which edged 0.1% higher and has gained 0.5% this week.