USD firm as inflation calls for stronger hikes; JPY hits 2002 lows

US inflation hits December 1981 highs, calling for stronger rate hikes from the Federal Reserve – Photo: Shutterstock

The US Dollar Index (DXY) rebounded above the 100 levels following the announcement of the US inflation data, with the overall index rising to 8.5% year-on-year in March 2022, the highest level since December 1981, up from 7.9% in February. Inflation excluding energy and food rose.

Rising inflation will now put further pressure on the Federal Reserve to raise rates faster than expected, with the market pricing in two back-to-back 50 basis point hikes in May and June now as a done deal.

The Japanese yen (JPY) continues to fall inexorably following remarks by Bank of Japan (BoJ) governor Haruhiko Kuroda, who emphasized the need of keeping an ultra-accommodative monetary policy despite inflationary concerns since the Japanese economy has yet to recover to pre-Covid levels. The USD/JPY pair exceeded a 20-year barrier level of 126, reaching its highest level since May 2002.

Meanwhile, the Reserve Bank of New Zealand (RBNZ) raised its Official Cash Rate by 50 basis points to 1.50%, signaling that it will continue to tighten monetary conditions to combat inflation. However, this was not enough to boost the kiwi – the New Zealand dollar (NZD) – which is down about 1% on the day due to worsening market risk sentiment.

Chart of the day (1): USD/JPY hits 20-year highs

A chart showing USD/JPY between 2000 and 2022USD/JPY hits 2002 levels – Photo: Capital.com. Source: Tradingview

This morning, the UK witnessed inflation rise to 30-year highs of 7% year-on-year, above a consensus of 6.7%, which might prompt the Bank of England to boost interest rates strongly amid a resilient labor market backdrop. The British pound (GBP) has been barely affected by the inflation data and is still hovering around 1.30 against the US dollar.

The euro (EUR) is bracing for tomorrow’s European Central Bank meeting, with the market focusing on the discussion of lowering net purchases and the timing of the first interest rate hike.

The Bank of Canada meeting is today’s key event on the forex market, with the consensus forecasting a 50-basis-point hike in interest rates to 1%, which might provide fresh support for the Canadian dollar (CAD), should oil prices remain at current or higher levels.

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Meanwhile, on the Ukraine front, tensions have risen again after Russian president Vladimir Putin announced that the talks have reached a “dead end”, and the US is preparing to send additional weaponry to Ukraine.

Chart of the day (2): US and UK inflation hit multi-decade highs in March 2022

A chart showing US and UK inflation rates US and UK inflation rates – Photo: Capital.com. Source: Tradingview

Forex markets today – April 13, 2022

  • In London’s morning trade, the US Dollar Index (DXY) traded at 100.33, up by 0.1% on the day.
  • The euro (EUR) held steady at $1,083. The British pound (GBP) was unchanged at $1.30.
  • Among safe-haven currencies, the Japanese yen (JPY) fell further by 0.6% today, after losing 2% over the past week. The Swiss franc (CHF) was flat.
  • Oil-linked currencies were mixed, with the Canadian dollar (CAD) holding up well as markets await for Bank of Canada’s rate hike today, while the Norwegian krone (NOK) slipped 0.3% against the USD.
  • The commodity-linked Australian dollar (AUD) was 0.5% lower, pairing back yesterday’s gains. The New Zealand dollar (NZD) fell 1%, despite the RBNZ hike.
  • Central Eastern European (CEE) currencies, such as the Hungarian forint (HUF), the Czech koruna (CZK) and the Polish zloty (PLN), remain broadly flat against the EUR.
  • The Russian ruble (RUB) was 0.5% higher today, after slipping as much as 3% yesterday.
  • Other emerging market currencies were on the green. The Turkish lira (TRY) gained 0.1%, and both the Mexican peso (MXN) and the South African rand (ZAR) were up by 0.2%. In Asia, both the Korean won (KRW) and the Chinese yuan (CNH) were flat.

Major currencies: Top risers and fallers today – 13 April 2022

A forex table that compares nine major currencies against each other, including USD, EUR, GBY, JPY, CHF, AUD, NZD, CAD and NOKMajor currencies: Today’s top risers and fallers, 13 April 2022, 11:30 UTC – Photo: Capital.com

Forex market heatmap – April 13, 2022

A forex table showing the performance of US dollar and the euro against other currenciesForex market heatmap as of 13 April 2022, 11:30 UTC – Photo: Capital.com

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