Once again, the U.S. dollar rallied overnight with many of its rivals falling to multi-year lows against the mighty buck.
Overview
The Bloomberg Dollar Index is now at a two-year high with much of the strength coming from the growth expected interest rate differential between the U.S. and other central banks. A separate gauge of dollar strength, the ICE Dollar Index, touched a two-decade high this morning.The one exception to broad dollar strength is the Swedish krona which rallied after Riksbank surprised markets and hiked interest rates by 25 basis points. The central bank also indicated it would likely hike rates three more times this year. USD/SEK is up 0.45%.The domestic calendar is a busy one today. The dollar has slipped from its highs a touch after a report showed the U.S. economy contracted in the first quarter. The advanced reading of Q1 GDP showed that the economy contracted 1.4%, missing estimates of a 1.0% expansion. The annual rate of growth was still a strong 6.9%. On the plus side, personal consumption rose 2.7%, beating estimates. A separate report showed weekly jobless claims fell 5K to 180K last week, in line with estimates. Later, the Kansas Fed manufacturing activity index will hit the wire at 11 a.m.
What to Watch Today…
- Kanas Fed Manufacturing Index at 11 a.m.
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EUR
The Euro crumbled to a five-year low against the U.S. dollar. The common currency has lost 5.0% of its value throughout April. If the losses hold, it would represent the worst month for the currency since 2015. The overnight slide appears to be a continuation of yesterday’s decline following the announcement that Russia will cut off gas supplies to Poland and Bulgaria. Euro area GDP will be released tomorrow.
JPY
The Japanese yen was the biggest loser overnight, losing as much as 2.0% of its value before retracing some of those losses. The yen has experienced a dramatic 7.5% decline this month alone and now sits at its weakest level in twenty years against its American rival. The most recent losses can be attributed to the Bank of Japan “doubling down on its promise to defend a rock-bottom yield target”, according to Bloomberg.
The BoJ said it would continue to buy an unlimited amount of bonds every day to protect a 0.25% ceiling on 10-year government debt. The strikingly dovish sentiment comes as other central banks are gearing up to take aggressive action to tighten monetary policy. In the aftermath of the yen’s bloodbath this morning, a Japanese finance official warned that Japan would respond “appropriately” to abrupt moves in the yen if needed. However, all verbal interventions in currency markets have been shrugged off by traders this month.
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