DXY hits two-decade highs near 104.00 as yen suffers BoJ crash after dovish policy

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What you need to know on Friday April 29:

Despite a surprise drop in inflation-adjusted economic activity in the United States in the first quarter of 2022 according to the latest GDP release, the U.S. dollar rose broadly on Thursday. The Dollar Index (DXY), a trade-weighted basket of major USD currency pairs, rose above its 2017 highs to hit 104.00, its highest level since December 2002. This was mainly the result of a A sell-off in the Yen pushed USD/JPY to new multi-decade highs to one point above 131.00. At current levels around 130.90, the pair looks on track to post a gain of around 1.9%, its biggest one-day move since March 2020.

The catalyst for the yen’s latest decline, which saw all major G10/JPY pairs surge, not just USD/JPY, was the BoJ’s dovish policy announcement on Thursday. As expected, the bank doubled down on its intention to stick to its ultra-dovish policies of negative interest rates and yield curve control for the foreseeable future, given continued pessimism about its ability to fulfill its long-term inflation mission. Some market commentators said it served as a “green light” for traders to continue selling yen.

Elsewhere, most of the other major G10 currencies also continued to depreciate against the surging US dollar. NZD/USD fell another 0.8% to new July 2020 lows below 0.6500, EUR/USD fell another 0.5% and briefly dipped below 1.0500 for the first times since March 2017, GBP/USD fell another 0.6% midway through 1.2400s and AUD/USD fell another 0.4% to probe 0.7100. Expectations for the BoE and RBA to hike interest rates by 25 and 15 basis points next week, with the RBA buoyed by spicy first-quarter Australian inflation data released earlier this week, n have done little to stem the recent fall.

Indeed, both of these hikes pale in comparison to the 50 basis point move expected from the Fed not only at next week’s meeting, but also at subsequent ones. The CAD was the only major G10 currency not to succumb to advances in the US dollar on Thursday. USD/CAD reversed from previous session highs near 1.2900 to trade slightly lower on the day near 1.2800 amid a surge in crude oil prices to their lows. highest levels in over a week.

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