Yentervention dents the dollar
The dollar saw sharp declines across the board on Thursday, prompted by FX intervention by Japan’s MoF, and compounding month-end rebalancing flows. The next result saw USDJPY fall more than 3% off recent highs, with the DXY closing the day out around the 98-mark as greenback selling pressure ripple
USD
The dollar saw sharp declines across the board on Thursday, prompted by FX intervention by Japan’s MoF, and compounding month-end rebalancing flows. The next result saw USDJPY fall more than 3% off recent highs, with the DXY closing the day out around the 98-mark as greenback selling pressure rippled out across other dollar pairs. That move also belies what, in our view, looks like a reasonably constructive backdrop for the buck. We continue to see most G10 central banks as more dovish than market pricing, a sense reinforced by yesterday’s BoE and ECB meetings. Meanwhile, Middle East tensions remain supportive of oil, while Q1 GDP figures, also published Thursday, indicated a solid start to the year relative to other major economies. Today’s calendar is light, with April ISM manufacturing and construction spending the only notable releases. With little progress in US-Iran peace talks, we expect risk sentiment to remain fragile and the dollar supported, though significant gains may require a fresh catalyst.
EUR
The euro made headway on Thursday, though we are inclined to see ECB policy as only a marginal support. The Governing Council left rates on hold, and President Lagarde largely endorsed market expectations, hinting at rate hikes later in the year. Rather, it was spillover from events in Japan, and month-end flows, that combined to push EURUSD above 1.17 by the end of the day. With the energy shock from Middle East hostilities still feeding through and most European markets closed for the May Day holiday, liquidity will be thin today. No major euro‑area data are due, meaning price action will be driven by broader risk sentiment and US releases. We continue to think that rallies in the euro will prove fleeting without a de‑escalation in the Middle East or a sustained decline in US yields.
GBP
Sterling nudged back above 1.36 against the dollar yesterday, though, like the euro, we think this had more to do with JPY intervention weighing on the buck than domestic monetary policy. Indeed, the Bank of England kept Bank Rate at 3.75 % in an 8‑1 vote, while we think the rhetoric continues to skew dovish relative to market pricing. Admittedly, model outturns in the MPR offered enough support for rate hikes in the coming months, meaning there was little impetus to unwind tightening expectations, in contrast to our expectations. But an “active hold”, as Governor Bailey described the Bank’s stance, is a very long way from endorsing the three rate hikes priced into swap markets. Looking ahead, the UK calendar is quiet, and many traders will be off for the early May bank holiday. With geopolitical risks still elevated and domestic catalysts limited today, we expect sterling to trade defensively, taking its cues from the broader dollar and energy prices.
CAD
USDCAD softened on Thursday, closing out the day sub-1.36 as Brent crude held near four‑year highs. Dollar weakness, rather than loonie strength, was the primary culprit. That said, safe‑haven demand for the US dollar and concerns over the Iran conflict are likely to limit any further loonie upside ahead of the weekend. The calendar is sparse today, with only the S&P Global manufacturing PMI due, leaving the currency to react to US ISM data and swings in oil. With the BoC firmly on hold and markets still debating Fed policy, we expect USDCAD to trade in a 1.35–1.37 range, biased higher if risk aversion intensifies.