Global currencies hold steady amid policy reviews and geopolitical shifts

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22nd April 2024 – (Hong Kong) In early Asian trading on Monday, the euro and yen remained stable while the U.S. dollar lingered near recent peaks, following a tumultuous week of policy updates and geopolitical tensions.

Market attention is particularly focused on the Japanese yen ahead of the Bank of Japan’s (BOJ) policy review this Friday. The yen traded at 154.70 against the dollar, hovering near a 34-year low and raising speculations about potential interventions by Japanese authorities if it reaches the critical 155 mark.

The dollar’s strength continues as evidenced by its position above 106 on the trade-weighted index, although it has slightly retreated from last week’s five-month highs. These levels were influenced by Federal Reserve officials’ remarks and unexpected inflation data, which scaled back anticipations of imminent rate cuts.

Meanwhile, easing tensions in the Middle East contributed to reduced market volatility after Tehran’s subdued response to an Israeli drone strike, suggesting efforts to prevent regional escalation.

Chris Weston of Pepperstone noted that while significant policy shifts from the BOJ are unlikely this week, market dynamics do not forecast any rate changes for this meeting. However, expectations for rate hikes later in the year persist.

On a broader scale, the strong dollar was a focal point at the recent International Monetary Fund/World Bank meetings in Washington. Here, a joint statement was issued by the United States, Japan, and South Korea concerning currency stability.

Bank of Japan Governor Kazuo Ueda indicated that further rate hikes could be considered if the yen’s depreciation significantly impacts inflation, underscoring the challenges of a weakening currency.

Conversely, expectations for rate cuts by the European Central Bank (ECB) and the Bank of England (BoE) remain, with ECB officials suggesting possible reductions if inflation trends align with projections.