The US dollar on Monday hit its highest level since early November against a basket of big currencies.
Forex Trading Insights: US Dollar Surges, Inflation curbed
The Japanese yen dropped to its weakest since 1990 as surprisingly strong US retail sales data for March supported shifting expectations of lower interest rates.
US retail sales rose 0.7% in March, a revised rise of 0.9% against an earlier estimate of 0.1% growth, compared with forecasts of 0.3% growth in the latest data released on Monday.
Latest Forex News: US Dollar Rises
The dollar rose as persistent inflation and strong growth are forcing many investors to push back expectations for Federal Reserve interest rate cuts and now also to expect lower rate cuts overall.
The US economic data expecting rate cuts nudged down from the three 25 basis point cuts expected at the start of the year to less than two cuts by year-end.
Latest Forex News: Fed rate cuts
‘Policies today remain well-placed and restrictive and we look to the Fed to begin cuts this year,’ says John Williams of the New York Fed.
The yen has also sagged badly against the overly strong dollar (particularly because of the huge interest rate differential between the US and Japan).
Latest Forex News: Yen takes a dive
In Tokyo, politicians are talking seriously about market intervention to bolster the yen, with the Finance Minister at one point warning that his government had ‘weapons’ it could deploy against ‘distorted’ movements in the currency.
Meanwhile, the U.S. dollar rose to a near two-week high against a basket of currencies, as more business activity than expected in Europe and the United States boosted the dollar’s appeal.
US factory activity grew to its highest in 25 months and Europe’s economy showed growth in the first quarter.
The dollar index , which measures the greenback against a basket of six major currencies, rose to a peak of 106.16, its highest since November 3, and was last up slightly at 106.03.
Latest Forex News: Geopolitical tensions
Rising geopolitical tensions in the Middle East, where Saudi Arabia has led a coalition to dislodge Iranian-backed rebels in neighbouring Yemen, have put more complex forces at work, suggesting some investors buy the U.S. dollar and Swiss franc when there are higher uncertainties.
Elsewhere on the currency markets, the euro ended steady against the dollar, and the British pound firmed.
Meanwhile, Bitcoin fell, following a trend seen in recent weeks from a low in March.
Latest Forex News: Markets mixed
US stocks on Wall Street were mixed on Monday amid a reversal that saw the US Treasury yield climb and the Japanese yen fall to levels last seen 34 years ago, after a spate of strong economic data and fears of war in the Middle East eased following Iran’s weekend raids on Israel.
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Serious market interventions were back into play amid flickers of positive economic data and retreating tensions over the ‘bird flu’ and between Israel and Iran over attacks this weekend.
The major US stock indexes were mixed.
Latest Forex News: Market leads downsizing
While the Nasdaq led the downswing after rebounding sharply following a selloff that crippled the broad markets last Friday, the rubber band had just snapped too far the other direction. Conversely, the yen was off to its weakest level since 1990.
US retail sales beat forecasts in March, reflecting that the American consumer is on a roll.
Perhaps more precariously, the international position looked much clearer: while Iran attacked Saudi oil facilities with missiles and drones, damaging some of Saudi’s oil-production equipment, the damage was actually quite small, and international diplomatic efforts were able to lower the regional temperature.
Latest Forex News: Eurozone
Financial markets in Europe responded in turn, amid cooling Middle Eastern tensions, with stock manufacturers rising in concert with Reliq, whose shares rose by almost 28% in reaction to the dismissal of Hindenburg Research’s allegations as being ‘inaccurate and misleading’.
Markets were soft in Asia though and key indexes eased lower in part because of the robust retail sales report.
Latest Forex News: US Treasury Yields
Treasury yields reached record highs in the US after the retail sales report as the 10-year and 30-year bond yields pushed higher.
Indeed, the dollar reached yet another high against a wide basket of international currencies, following the yen’s massive plunge to a multi-decade low.
There have even been rumours about intervention by Japanese monetary authorities being organised to halt a further depreciation of the yen.
The price of commodities also fluctuated; while the easing of geopolitical risk following the Iranian missile attack dragged crude oil prices lower, gold prices rose, adding to the record high seen in the previous session.
Latest Forex News: Sterling takes a hit
The beleaguered British pound bounced back on Monday, recovering from its worst weekly decline against the dollar since July, after rallying from a five-month low touched the previous day.
In a week where traders are bracing for a deluge of data that will determine the Bank of England’s short-term policy, there are labour market numbers on Tuesday and inflation data on Wednesday that will help fix the timing of the expected pre-Christmas rate cuts beginning in August, according to the markets.
Latest Forex News: Rate cuts in focus
Traders put the probability at around 50% of a cut at the June meeting, and expect two quarter-point rate cuts this year. If data coming up prove unhelpful, further dovish moves could end up pushing the pound down, while traders and investors remain reluctant to bet against Powell. ‘
Meanwhile, sterling had gained 0.4% against a generally weaker dollar on Tuesday afternoon at $1.24965 compared with Friday’s close of $1.24265 — its lowest level since November.
Sterling was also higher against the euro at 85.34 pence per euro — around a 0.2% gain.
At the same time, global geopolitics are also being tracked closely, with markets charged up after Iran’s recent missile strikes on Israel (markets have been muted about the geopolitically tense surroundings, too).
Latest Forex News: Bank of England to focus on inflation
Attention also turns to forthcoming speeches by senior officials at the Bank of England (BoE), and in October Clare Lombardelli, the next deputy governor for monetary policy, will be quizzed by the Parliament’s Treasury Select Committee on Tuesday.
The U.S. dollar reached its strongest level against the Japanese yen since June 1990 as the yen continued to weaken on Monday.
Some traders say they are on alert for what they see as inevitable Japanese officials’ efforts to prop up the yen.
The yen’s weakness reflects broad dollar strength, supported recently by robust economic indicators as markets shifted price expectations over the timing of the next Federal Reserve interest rate cut to September from June.
Oil-price concerns have also boosted the dollar in recent days.
However, the greenback also got a boost from better-than-expected US retail sales for March.
The weak yen has fanned talk of intervention again. Japanese Finance Minister Shunichi Suzuki has suggested the government is closely watching trends in foreign exchange market, and emphasised that Tokyo will remain ready to intervene if needed.
Meanwhile, the greenback, or dollar, was up 0.66% to 154.28 yen at the close of business, the highest since 1990.
The Israeli shekel surged by 1% against the dollar on Monday, reflecting a widespread market sense of relief that Israel had bowed to international appeals not to retaliate against Iran following an attack on it last Saturday.
The shekel traded at 3.73 to the dollar, compared with last Friday’s close of 3.771, marking the local foreign exchange market’s initial reaction to Iran’s firing of more than 300 missiles and drones.
In Israel, the foreign exchange market is closed on Sunday.
And while that trend is welcome, for the month the shekel is still almost 2% weaker on the dollar, and since the start of 2024 has slid downward 4%.
Meanwhile, worries about Iranian retaliation following the suspected Israel airstrike on a Syrian military facility prompted a slide in the shekel as well.
On the Tel Aviv stock market, indices rose by 0.3% on Sunday, with shares initially surging on Monday before falling towards the end of the day. Meanwhile, government bond prices also tumbled by a maximum of 0.6%.
Jonathan Katz, chief economist at Leader Capital Markets, said he expects tensions with Iran not to escalate, given the international support for Israel in the aftermath of the attack, and the muted response and likely limited retaliation – likely with US blessing.
The Indian rupee closed at its lowest-ever level on Monday as rising tensions in the Middle East battered Asia’s currencies and risk assets, while the South Asian currency has chronically underperformed regional rivals this year.
The local unit closed at 83.4500 against the U.S. dollar, barely off Friday’s close of 83.4125, when it had hit the all-time low of 83.4550.
Sugandha Sachdeva at SS WealthStreet in New Delhi said although foreign inflows have been strong, the Reserve Bank of India has been active on the forex front to manage volatility and support the rupee.
And Sachdeva remarked further downward pressure might be seen in the rupee is the escalating tension in Middle East turns ugly following Israeli withdrawals, which of course depend on Israel’s reactions to the recent events.
Most currencies in Asia dropped after Iran’s strike on Israel, and the Gaza conflict since 7 October propelled the region further into tension.
Meanwhile, the dollar index, which measures the greenback against six major currencies, traded at just under 106 globally, while US Treasury yields have risen ahead of highly anticipated US inflation numbers, nudging back expectations for Fed rate cuts.
Bank of America Securities recently moved its estimate of the likely timing of Fed rate cuts forward from November to December, as the likelihood of labour market slack is still not concrete.
