The U.S. dollar skyrocketed to a five-week high against the basket of six major currencies on Monday. Traders bet that the Federal Reserve will continue monetary policy tightening in the coming months. Such sentiment sent the greenback rallying. At the same time, the Japanese Yen plummeted, though. Investors are waiting for U.S. consumer price data that is due on Tuesday. It will likely offer some insights into the Fed’s future policy plans.
On Monday, the U.S. dollar jumped by 0.7% to 132.48 Japanese yen. The latter’s government will announce who succeeds in the Japanese central bank governor’s post on Tuesday. Market participants are waiting for this news to find out what they should expect from the BOJ in the new future. Thus far, the country has maintained its ultra-easy monetary policy, causing the Yen to struggle and trade in red against the other major currencies. However, the government claimed that Japan wasn’t ready to face hiking interest rates in the wake of the COVID-19 pandemic crisis.
On Friday, some government officials noted that former BOJ board member Kazuo Ueda would take the governor’s post. Even though Ueda is considered hawkish, he stated on the same day that the BOJ’s decision to maintain its ultra-easy policy was correct.
Naka Matsuzawa, the chief strategist at Nomura in Tokyo, noted that investors are starting to recognize that the new governor will be much more dovish than they expected. Such a stance will cause the Yen to continue declining, though.
What about the euro and sterling?
The euro remained firm against the dollar on Monday. It exchanged hands at $1.0685 at last. At the same time, the British Pound traded at $1.206. It was also steady against the greenback. The dollar index stood at 103.61 at last. But it hit 103.8 earlier in the session. If the currency overcomes 103.9 points, it will be trading at its highest level since early January. According to analysts, if the U.S. CPI data comes out strong, it will bolster the greenback, pushing it even higher.
At the beginning of this month, U.S. jobs data showed that the country’s economy is robust. Thus, there is less need for the agency to maintain high-interest rates, especially with inflation backing down at last.
Barclays analysts noted that this week’s U.S. CPI data would be one of the most pivotal reports in the last few months. While the U.S. labor market’s strength supported the greenback, it may start declining if the new data won’t help the currency strengthen its position.
Meanwhile, the Swiss franc soared versus the dollar even though new data showed that Swiss inflation increased more than traders expected. Consequently, the greenback plummeted to as low as 0.9220 francs briefly. But the currency managed to rebound soon. At last, it exchanged hands at 0.9237 Swiss francs.
How are the EM currencies faring?
Emerging market currencies traded in the red on Monday. They added to their steep losses against a rallying U.S. dollar. Moreover, the Polish zloty tumbled down versus the euro, hitting its lowest level since October.
On Monday, the zloty dropped by 0.4%. Central banker Joanna Tyrowicz stated that it was a mistake to keep interest rates at current levels. This comment sent the currency tumbling.
The National Bank of Poland decided to leave its main interest rate unchanged last week. It remains in wait-and-see mode, like other regional central banks, trying to assess how much damage the economy suffers due to the war in Ukraine.
Michael Wang, the deputy portfolio manager at Mirabaud Asset Management, noted that Poland’s central bank seems more dovish compared to the Eurozone and the rest of the CEE.
On Tuesday, Hungary’s foreign exchange dropped by 0.2% versus the euro. It traded at 387.54 euros at last. Analysts think that reports might show Hungary’s inflation peaking in January.
Furthermore, the Czech crown climbed by 0.1% today. Vice-Governor Jan Frait announced that the Czech central bank would be able to maintain its interest rates at current levels if the economy continues growing as expected and inflation stays low.
On Monday, the MSCI index for EM currencies declined by 0.3% versus the U.S. dollar. Russia’s rouble plunged to 73.65 against the USD, trading near its lowest level since April. Meantime, South Africa’s rand decreased by 0.5% against the greenback, while the Turkish Lira traded flat.