Asian session review: the US dollar stabilized against major currencies

During today's Asian trading, the US dollar consolidated against major currencies, remaining near its highest level since early November 2023.

The US Dollar Currency Index (DXY), which tracks the dynamics of the dollar against six currencies (euro, swiss franc, yen, canadian dollar, pound sterling and swedish krona) rose by 0.01% to 106.26. Yesterday, the index rose by 0.13%, helped by statements by Fed Chairman Jerome Powell, who said that although inflation continues to decline, the current state of policy should remain unchanged. "Recent data show steady growth and continued strength in the labor market, but also a lack of further progress this year in bringing inflation back to our 2% target," Powell said, adding that the current rate level is likely to remain unchanged until inflation approaches the target. The comments follow a slew of data in recent weeks that have underscored the strength of the U.S. economy along with persistent inflation. According to the CME FedWatch Tool, markets see a 13.0% probability of a 25 basis point rate cut at the Fed meeting in June, and a 40.0% probability of a rate cut in July (compared to 42.4% a week earlier). In addition, markets now expect only two rate cuts by the end of 2024, whereas at the beginning of the year they predicted six rate cuts.

The yen rose 0.15% against the US dollar, but remained near a new 34-year low, reached yesterday. This year, the USD/JPY has grown by about 9%. Gradually, the yen is inching closer to the 155 per dollar level that traders worry might result in intervention by Japanese authorities. The last time Japan intervened in the foreign exchange market was in 2022, spending about $60 billion to protect the yen. Meanwhile, experts warn that in the current conditions, it will probably take significantly more funds to achieve a lasting effect, since the yield on 2-year US bonds has increased by about 36 bps since the beginning of April.

The New Zealand dollar rose by 0.5% against the US dollar on the back of New Zealand inflation data, which showed that in the 1st quarter the CPI increased by 0.6% QoQ. That was in line with expectations and up from 0.5% in the 4th quarter. On a yearly basis, inflation rose 4% - above forecasts for 4.5% and down from 4.7% in the 4th quarter. Given that inflation remained surprisingly strong, the probability has increased that the Central Bank will keep rates at the current level for a longer time.