U.S Fed expected to deliver a half-point interest rate rise in May to tackle rising inflation

• The dollar hit a six-year high versus the yen after the BoJ moved to contain rising bond yields
• U.S Treasury yields soared to new multi-year highs
• Interest rate hike expectations helped lift the dollar to its highest in two weeks

Forex market

The dollar hit a six-year high versus the yen after the Bank of Japan moved to contain rising bond yields, while U.S Treasury yields soared to new multi-year highs, highlighting a divergence between the BOJ and other major central banks. 

Treasury 10-year yields vaulted above 2.5% to three-year highs, with the U.S Federal Reserve expected to deliver a half-point interest rate rise in May as it tackles rising inflation, having kicked off its tightening cycle this month. 

We now expect the FOMC to hike by 50 bps at the next two meetings before shifting back to a 25-bps-per meeting cadence for the remainder of the year. Interest rate hike expectations helped lift the dollar to its highest in two weeks against a basket of six major peer currencies. Against the yen, the dollar surged as much as 2.5% to its highest level since August 2015 and the biggest one-day rise since March 2020.

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Yen losses in March surpass 7% and the currency is set for its biggest monthly and quarterly falls since 2016. The dollar was last up 1.34% against the Japanese currency at 123.715 yen. Struggling to swim against the tide lifting interest rates higher globally, the BOJ staunchly defended its 0.25% yield cap on Monday by offering to buy an unlimited amount of government bonds (JGBs) for the first four days of this week. While that did not stop 10-year yields from hitting the upper limit of the BOJ's policy band, it sent the yen spiraling. 

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On net, JGBs mostly shook off what was just a repeated gesture to defend the 10-year yield ceiling but the signal toward expanding money supply contributed to yen softness alongside the more dominant Federal Reserve effects on the dollar. The Japanese currency also lost ground against the euro, which is increasingly underpinned by expectations the European Central Bank will join the rate hike club this year. The euro gained 1.27% to 135.895 yen, a four-year high.

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Euro-EUR

The single currency edged up against the greenback. The single currency's fortunes this week could be determined by inflation figures from major European economies, with the bloc's harmonized HICP inflation seen edging up to 6.5% in March. The U.S Federal Reserve expected to deliver a half-point interest rate rise in May as it tackles rising inflation. Overall, the EUR/USD traded with a low of 1.0979 and a high of 1.1036 before closing the day around 1.0981 in the New York session.

Japanese Yen-JPY

The Japanese fought to regain a footing, recovering a little from heavy selling as some traders start to see risks of official pushback if Japan's currency falls much further. The yen has been hammered some 7% lower through March as the BoJ has stuck with dovish policy settings. Japan's central bank bought a little more than $500 million in bonds. Overall, the USD/JPY traded with a low of 121.16 and a high of 122.41 before closing the day around 122.13 in the U.S session.

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British Pound-GBP

The British Pound fell as investors focused on monetary policy divergence between Britain, the United States and the euro area. In a speech in Brussels, Bank of England (BoE) Governor Andrew Bailey largely stuck to the tone of this month’s interest rate announcement, in which officials softened their language on the need for further rate hikes.. Overall, the GBP/USD traded with a low of 1.3157 and a high of 1.3223 before closing the day at 1.3183 in the New York session.

Canadian Dollar-CAD

The Canadian Dollar weakened against its U.S counterpart yesterday, pulling back from a two-month high, as oil prices tumbled and the greenback broadly climbed. It follows nine straight days of gains for the currency, the longest winning streak since August 2016. On Friday, it touched its strongest level since Jan. 20 at 1.2462. Overall, USD/CAD traded with a low of 1.2462 and a high of 1.2550 before closing the day at 1.2473 in the New York session.

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Australian Dollar-AUD

The Australian Dollar hovered near multi-year peaks on the yen and euro today as commodity prices looked set to remain high for an extended period, delivering a sustained export boost to the resource-heavy currencies. That outlook represented major terms of trade shock for Japan, which imports most of its resources. Overall, AUD/USD traded with a low of 0.7358 and a high of 0.7416 before closing the day at 0.7410 in the New York session.

Euro-Yen EUR/JPY

EUR/JPY is trading above 14, 50 and 100 days moving average. Fast stochastic is giving a bullish tone and MACD is also issuing a bullish stance. The Relative Strength Index is above 61 and lies above the neutral zone. In general, the pair has lost 0.30%.

Sterling-Yen GBP/JPY

Currently, GBP/JPY is trading above 14, 50 and 100 days moving average. Fast stochastic is issuing a bullish tone and MACD is also indicating a bullish stance. The Relative Strength Index is above 60 reading and lies above the neutral zone. On the whole, the pair has lost 0.19%.

Trading Signals and Trading Forecasts

Aussie-Yen AUD/JPY

Currently, the cross is trading above 14, 50 and 100 days moving average. Fast stochastic is giving a bullish tone and MACD is also indicating a bullish stance. The Relative Strength Index is above 76 reading and lies above the neutral region. In general, the pair has lost 0.11%.

Euro-Sterling EUR/GBP

This cross is currently trading above 14, 50 and below 100 days moving average. Fast stochastic is indicating a bullish tone and MACD is also issuing a bullish signal. The Relative Strength Index is above 53 and lies below the neutral region. Overall, the pair has lost 0.12%.

Sterling-Swiss GBP/CHF

This cross is trading below 14, 50 and 100 days moving average. Fast stochastic is issuing a bearish stance and MACD is also indicating a bearish tone. The Relative Strength Index is above 45 and lies below the neutral region. In general, the pair has gained 0.02%.

CFD News: US Stock Markets

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