The Dollar on A Rise, the Yen on A Fall

The dollar rose slightly against the Japanese yen on Monday morning in Asia, reaching as high as 119.3 yen, threatening the six-year high of 119.39 reached on Friday. By 11:47 p.m. E.T., the U.S. Dollar Index, which measures the dollar’s value against a basket of other currencies, had risen 0.05 percent to 98.278. (3:47 AM GMT). With Japanese markets closed for the holiday, the USD/JPY pair rose 0.01 percent to 119.19. The Australian dollar fell 0.19 percent to 0.7401, while the New Zealand dollar rose 0.04 percent to 0.6905. The USD/CNY exchange rate increased by 0.04 percent to 6.3640; the GBP/USD exchange rate fell by 0.16 percent to 1.3159.

On Monday, the yen continued to fall while the Australian and New Zealand currencies remained strong. A wave of global central bank policymakers, including U.S. Federal Reserve Chairman Jerome Powell, will speak throughout the week. According to CBA strategists, the dollar will rise against the yen in the next months as the interest rate differential between the United States and Japan increases.

Fed’s Policy Adjustments

BOJ maintained its dovish stance when it announced its policy decision on Friday. This was in contrast to the Fed’s policy of raising interest rates the previous Wednesday. CME’s Fed watch forecasted a roughly 90% possibility of at least 75 basis point rises at the Fed’s May and June 2022 meetings. The dollar rose quickly in the early part of this year due to such lofty expectations. However, some investors believe it will struggle to gain further as many Fed rises have already been priced. “Given already-hawkish market expectations of Fed tightening, it is difficult to envisage greenback strength sustaining beyond the short term,” according to Barclays (LON: BARC) analysts. In addition, the yen fell to a four-year low versus the riskier Australian dollar, which has benefited from recent commodities price increases.

The Fed’s hike cycle is already priced in. According to Barclays strategists, the current improvement in global risk sentiment, which usually supports risk-friendly currencies, might lead to more rises.