April 21, 2022: The dollar rose Thursday, supported by expectations for an aggressive monetary tightening from the Federal Reserve, but it was far from the previous day’s highs amid nervousness about what the G7 might say about its rapid appreciation.
The greenback rose 0.34% to 128,305 yen after soaring to a two-decade high of 129,430 on Wednesday as the Bank of Japan (BOJ) entered the bond market for the third time in three months to reach its zero percent target. to defend returns. , which is in stark contrast to the Fed’s increasingly aggressive stance.
Treasury Secretary Shunichi Suzuki said in Washington DC on Thursday that he had explained the “somewhat rapid” decline in the yen to his Group of Seven counterparts, but did not comment on how they responded.
He warned in recent days of possible damage to the Japanese economy from a weakening currency.
Suzuki is set to meet with US Treasury Secretary Janet Yellen this week, prompting traders to scale back bearish yen bets on the potential for a boost in rhetoric.
The dollar index – which measures the currency against six competitors, including the yen – rose 0.16% to 100.50, after pulling back from a more than two-year high of 101.03 in the previous session.
Also allowing the dollar to fall overnight, benchmark government bond yields retreated from their highest levels since December 2018, by nearly 3%, as dip buyers emerged. However, those yields also rose during trading in Tokyo on Thursday.[US/]
“Few central banks will be able to match the Fed this year for policy hikes and balance sheet shrinking, making a dramatic policy differential in favor of the USD,” Westpac strategists wrote in a client note.
The dollar index “must remain bidded in this environment, with an expectation of 101-102 likely to rise in the near term,” they said.
Mary Daly, president of the San Francisco Fed, said on Wednesday she believes the case for a half-percentage-point rate hike next month is “complete” and “solid,” adding to recent comments from other Fed officials calling for greater support rate hikes.
Markets are currently priced for half-point gains in both May and June.
By contrast, on Wednesday, the BOJ offered to buy unlimited amounts of 10-year Japanese government bonds for four consecutive sessions as yields hit the 0.25% maximum margin around the zero percent target, fueling its commitment to ultra-easing stimulus packages. shows. its policy meeting next week.
BOJ Governor Haruhiko Kuroda holds out that a weak yen is generally good for the economy, but reiterated Thursday that currency volatility could hurt business activity.
Japanese policymakers “have not yet fully used their verbal intervention toolkits — the next stage would typically involve movements being described as ‘speculative’ and threatening to ‘take decisive action,'” wrote Adam Cole, chief currency strategist at RBC Capital Markets, in a study. Note.
“When we get to that point, the hurdle to the next logical step of physical intervention may be lower than commonly believed.”
But on whether intervention would work, he said it “could restore equilibrium in the markets in the short term and contain the pace of the JPY depreciation (but) in the longer term, there is no prospect of the BOJ all of the JPY sales we expect to clear out of Japan as the Fed’s walking cycle gets underway.”
Elsewhere, the euro lost 0.19% to $1.0832, while the pound sterling fell 0.13% to $1.3052.
The Australian dollar fell 0.25% to $0.74325.
The New Zealand dollar fell 0.30% to $0.67845, hurt by less-than-expected consumer price data.
The onshore Chinese yuan continued to be under pressure, falling to 6.4449 per dollar for the first time since Oct. 13.
A growing number of analysts are lowering China’s growth forecasts. Shanghai authorities said Thursday the number of COVID-19 cases outside the city’s quarantine zones has risen again, warning that severe lockdown restrictions will remain in place for the time being, even in districts that managed to cut transmissions to zero. bring.
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