Dollar Mixed after Central Banks Raise Rates; USD/JPY Plummets

US 10-Year Yield Drops to 3.42% (3.59%); Wall Street Stocks Mixed

Summary:

The US Dollar finished mostly lower against its Rivals after central banks raised interest rates. The Federal Reserve hiked its Fed Funds Rate to 5% from 4.75%. In a move to calm markets, Fed Chair Jerome Powell said that ongoing rate increases would no longer be necessary.

The Bank of England raised its Prime interest rate to 4.25% from 4.0%. Sterling (GBP/USD) edged higher to 1.2290 (1.2215 yesterday). The Euro (EUR/USD) fell to 1.0837 after trading to an overnight peak at 1.0930.

US treasury bond yields slumped, led by the 10-year note, down 18 basis points to 3.42%. Other global yields were also higher. The UK 10-year Gilt yield lost 9 basis points to 3.35%.

While risk sentiment improved, the Australian Dollar finished little changed at 0.6682 (0.6670 yesterday). The Aussie Battler traded to an overnight high at 0.6755 before sliding.

The Greenback plummeted lower against the Japanese Yen to 130.55 from 132.52 following the rate hike by the Fed. Overnight, the USD/JPY pair fell to an overnight and February low at 130.39.

Against the Asian and Emerging Market currencies, the US Dollar closed mixed. The USD/CNH (Dollar-Offshore Chinese Yuan) plunged to 6.8275 against 6.8785 yesterday. USD/THB slid to 34.05 against 34.45.

Economic data released yesterday saw UK annual CPI climb to 10.4% from a previous 10.1%, and higher than economist’s expectations of 9.9%. Core CPI (y/y) was up at 6.2% from 5.8%.

The Swiss National Bank (SNB) hiked its Key Deposit Rate by 0.5% to 1.5%, which was widely expected. It was the fourth rate increase by Switzerland’s central bank. Eurozone Consumer Confidence slipped to -19 against forecasts at -18.

US Weekly Unemployment Claims eased to 191,000 from a previous 192,000, and lower than median expectations at 198,000.

• EUR/USD – The shared currency tumbled from its overnight highs at 1.0930 to finish in New York at 1.0837. Yesterday, the Euro opened at 1.0767. ECB officials remained hawkish. Governing Council member Muller said: “the ECB should likely raise rates by a little”. Overnight low traded was at 1.0824.
• USD/JPY – Against the Japanese Yen, the Greenback plummeted lower to 130.55 from yesterday’s 132.53. In volatile trade, the US Dollar hit a high at 131.66. The overnight low recorded was at 130.32.
• AUD/USD – The Aussie Battler had a roller coaster ride against the Greenback. In overnight trade, the high recorded was at 0.6755 before tumbling to 0.6682 at the close. Yesterday, the AUD/USD pair opened at 0.6670. Overnight low traded was at 0.6555.
• GBP/USD – Sterling soared to 1.2344 overnight highs before easing to settle at 1.2290 in late New York. Yesterday, the British Pound opened at 1.2215. The BOE lifted its prime interest rate by 25 bps to 4.25%, as expected. Seven out of 9 policymakers voted to hike.

On the Lookout:

Following their decisions to increase interest rates, central bankers are now data-dependent with today’s economic calendar having more significance.

Australia kicks off with its Judo Bank March Flash Manufacturing PMI (f/c 50.4 from 50.5 – ACY Finlogix), Flash March Services PMI (f/c 50.5 from 50.7 – ACY Finlogix).

Japan follows next with its February Inflation Rate (y/y f/c 3.3% from 4.3%; m/m f/c -0.3% from 0.4% - ACY Finlogix). Japanese March Core Inflation follows (y/y f/c 3.1% from 4.2% - ACY Finlogix). Japan also releases its Jibun Bank Flash March Manufacturing PMI (f/c 48.8 from 47.7), Jibun Bank Flash Services PMI (f/c 52 from 54 – ACY Finlogix).

The UK starts off Europe with its February Retail Sales (m/m f/c 0.2% from 0.5%; y/y f/c -4.7% from -5.1% - ACY Finlogix).

France releases its March S&P Global Manufacturing PMI (f/c 48 from 47.4); French March Services PMI (f/c52.5 from 53.1 – ACY Finlogix).

Germany follows next with its March Flash Global Manufacturing PMI (f/c 47 from 46.3), German Flash Services PMI (f/c 51 from 50.9). The UK releases its March Flash Global Manufacturing PMI (f/c 49.8 from 49.3); UK March Services PMI (f/c 53 from 53.5 – ACY Finlogix).

Canada kicks off North America with its January Retail Sales report (m/m f/c 0.7% from 0.5% - ACY Finlogix).

The US rounds up today’s economic data releases with its February Durable Goods Orders (m/m f/c 0.6% from -4.5%), US Core Durable Goods Orders for February (f/c 0.2% from 0.7%), and US Flash March S&P Global Manufacturing PMI (f/c 47 from 47.3); US Flash March S&P Global Services PMI (f/c 50.5 from 50.6).

Trading Perspective:

The Dollar finished mostly lower against its Rivals after what traders considered a dovish Fed rate hike. A favoured gauge of the Greenback’s value against a basket of 6 major currencies, slid to 102.15 from 102.80 yesterday. After a busy week which saw major central bank meetings and top-tier economic data, the US currency finds itself on the backfoot. The verdict from FX markets is that the Fed is either finished or nearly finished with raising rates. This will keep the US currency soft until more primary economic data is released. Today sees the release of global manufacturing and services PMIs. US Durable Goods Orders for February will also be released. Expectations are for improvement in Headline US DGO (see above). Any read lower than expectations will heap more pain on the US currency. That said, it is Friday, so position adjustments will be made.

• EUR/USD – The shared currency has benefitted from the softer Greenback for most of the week apart from last night. In volatile trade, the overnight high recorded for the EUR/USD pair was at 1.0930, its early February high. The Euro eased to settle at 1.0838. Today look for immediate resistance at 1.0870, 1.0900 and 1.0930 to cap. Immediate support can be found at 1.0820 (overnight low traded was at 1.0824). The next support level lies at 1.0780. Look for another roller coaster ride with today’s likely range between 1.0820-1.0920. Sell rallies.
• AUD/USD – The Aussie Battler recovered against the broadly based weaker Greenback, settling at 0.6682 from 0.6670 yesterday. The Australian Dollar has immediate resistance today at 0.6710, 0.6740 and 0.6770. Overnight high traded was at 0.6755. Immediate support can be found at 0.6670 (overnight low) followed by 0.6640 and 0.6600. Look for more choppy trade today, likely range 0.6650-0.6750. Prefer to sell rallies.
• USD/JPY – Against the yield sensitive Japanese Yen, the Greenback plummeted to finish at 130.55 in New York. Lower US treasury bond yields weighed on the USD/JPY pair. On the day, look for immediate support at 130.30 (130.32 overnight low). The next support level lies at 130.00. On the topside, immediate resistance can be found at 130.80, 131.30 and 131.70. Look for another choppy session in the USD/JPY pair, likely range 130.30-131.70. Buy dips.
• GBP/USD – The British Pound gained versus the overall weaker US Dollar to 1.2290 New York close against yesterday’s open at 1.2215. On the day, look for immediate resistance at 1.2320 and 1.2350 (overnight high traded was at 1.2344) to cap. On the downside, immediate support lies at 1.2260 (overnight low traded was at 1.2262). The next support level is found at 1.2230. Look for another volatile ride in this currency pair, likely range between 1.2250 and 1.2350. Preference is to sell rallies. The Dollar should recovery today.

It's been a hectic and long week in FX. Happy Friday all, happy trading.

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