Aggressive Powell boost dollar
A very hawkish Jerome Powell overnight lifted US yields across the curve and sent the US dollar higher, aided by some Ukraine tailwinds as negotiations between the warring states went quiet. The dollar index rose 0.25% to 98.47, adding another 0.31% to 98.79 in Asia as the Japanese yen slumped. The last 245 hours appear to be one of those days where uncomfortable truths are finally confronted, and that uncomfortable truth is that the US Federal Reserve is in inflation-hunting mode, and that US rates could move higher faster. Add in oil prices soaring and no progress in ending the Ukraine war and all the ingredients are there for a US dollar rally.
USD/JPY has risen sharply by 0.70% today to 120.30 after BOJ Governor Kuroda maintained the BOJs dovish stance, adding more momentum to the US/Japan rate differential trade. With most of Asia taking much the same view as Japan, Asian currencies are also lower across the board and I expect those pressures to increase over the next few months. USD/JPY, having broken through 120.00, now has 123.00 and 125.00 potentially in its sights. Any thoughts that the Ministry of Finance will intervene are complete nonsense unless moves in the yen become extremely disorderly.
USD/KRW and USD/MYR are 0.25% higher with USD/TWD 0.40% higher, while only USD/CNY is unchanged at 6.3645 after a neutral PBOC fix. If China is embarking on a steady weakening of the yuan from here, the pressure on regional currencies will also increase.
A lack of Ukraine negotiation progress, higher US rates and soaring oil prices have weighed on the euro, offsetting any gains from refusing to enact a Russian oil embargo. EUR/USD fell 0.36% to 1.1017 overnight, easing lower to 1.0990 in Asian trading. That leaves EUR/USD midrange between critical long-term support at 1.0800, and resistance between 1.1150 and 1.1200. Short of a peace agreement arriving between Ukraine and Russia, the single currency will struggle to maintain gains above 1.1100 now.
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