Yen Weakens to 157 per USD, Intervention Rhetoric Ramps Up

DXY Pauses, Dips to 104.75; Aussie, Kiwi, EMFX Gain Vs Dollar 

Summary:

The Dollar Index (DXY), a popular measure of the Greenback’s value against a basket of 6 major currencies, eased to 104.75 (105.05) in choppy pre-weekend trade. 

Despite a lower close to the Dollar Index, the USD/JPY pair climbed to 157.00 at the close of trade in New York. Japan’s inflation in April slowed, contributing to the Yen’s weakness. Japan’s Annual Core Inflation eased to 2.2% in April from 2.6% in March. 

Over the weekend, G7 finance chiefs reaffirmed their long-term commitment to currencies, warning against excess volatility and disorderly FX moves. Japan welcomed the commitment.

Despite the ramp-up in intervention talk, the gap between US and Japanese yields widened. The US 10Y yield settled at 4.46% (4.42% Friday). Japan’s 10-year JGB yield was flat at 0.99%. 

The Yen’s weakness was even more apparent in some of the Yen crosses, rather than just the US Dollar. The EUR/JPY cross hit a 20-year high above 170 (170.25). GBP/JPY soared to 200.06 overnight and fresh 16-year high before settling at 200.00. 

The Euro (EUR/USD) rallied to 1.0850 from 1.0815 while Sterling (GBP/USD) gained 0.3% to 1.2740 (1.2697 Friday). German and Eurozone Flash Manufacturing PMIs both beat expectations, climbing to 53.9 and 47.4 respectively. 

The Australian Dollar (AUD/USD) outperformed, climbing to 0.6630 from 0.6605. Overnight, the Aussie Battler slumped to a low at 0.6592 before rebounding to finish above 0.6600.

New Zealand’s Kiwi (NZD/USD) rallied to 0.6122 from 0.6098. Hawkish rhetoric from RBNZ officials supported the Kiwi. On Friday RBNZ Governor Adrian Orr played down the likelihood of another interest rate hike. 

Against the Asian and Emerging Market Currencies, the Greenback was mixed. The USD/SGD pair (Dollar-Singapore) slipped to 1.3500 (1.3515). The USD/PHP pair (Dollar-Philippine Peso) soared to settle at 58.21, highs not seen since October 2022.

• USD/JPY – the Greenback maintained its bid against the Yen, settling at 157.00, modestly higher than Friday’s opening at 156.75. In subdued trade following the ramp up in intervention rhetoric the USD/JPY hit an overnight high at 157.14. The overnight low traded was 156.70. 
• AUD/USD – the Aussie Battler climbed against the Greenback to finish at 0.6630, up from 0.6605. The Australian Dollar traded to an overnight high at 0.6637 before easing at the close. The overnight low recorded was 0.6592. 
• EUR/USD – the shared currency rebounded to 1.0850 from Friday’s opening at 1.0812. The Euro traded steadily to an overnight high at 1.0858 while the overnight low recorded was at 1.0805. The Euro also climbed against the Yen to a 20-year high at 170.25 before settling at 170.00.
• GBP/USD – Sterling rallied against the modestly weaker Greenback to finish at 1.2740, up from Friday’s 1.2697. The British Pound saw an overnight low at 1.2669 before rallying modestly to its close. The overnight high recorded for GBP/USD was at 1.2750.

On the Lookout: 

After a busy close to last week on Friday, expect Asia to consolidate within recent ranges. To kick off this week, today’s economic calendar is light. Bank of Japan Governor Ueda speaks (10 am Sydney time). UK markets will be closed to celebrate the Spring Bank Holiday. Germany starts off Europe with its German IFO May Business Climate Index (f/c 90.3 from 89.4 previously – ACY Finlogix). China follows with its Annual Industrial Profits for April (f/c 3.5% from 4.3% - ACY Finlogix). Next, Japan releases its March Final Leading Economic Index (f/c 111.4 from 112.10 – ACY Finlogix). US markets will also be closed in observance of Memorial Day.

Trading Perspective: 

Asia opens with the focus on the Japanese currency. The Yen has been gradually depreciating, not just against the US Dollar, but other crosses as well, making it more difficult for the Bank of Japan (BOJ) and/or Ministry of Finance (MOF) to justify intervening again. 

Over the weekend, G7 finance ministers (United States, Britain, Canada, France, Germany, Italy, and Japan) met in Italy to discuss their commitment cautioning against excess volatility in FX rates. However, as City Index head of market research Matt Weller remarked in his Japanese Yen forecast: “the relative weakness of the US Dollar over the last month is masking the broad-based Yen weakness against Japan’s non-US trading partners.” On Friday the Yen hit a 20 year low against the Euro and a 16-year low versus the British Pound. 

Trading conditions were far from “disorderly” with the Yen gradually depreciating against the other currencies. Which also makes any kind of intervention in the Japanese currency difficult. Also, the differentials between US and Japanese yields widened over the weekend, keeping the Yen under pressure. Only if these differentials narrow (which would mean the BOJ shifting in monetary policy) will the Yen’s depreciation stop.
Meantime, get ready for another volatile week in the FX markets which starts today. Happy days!

• USD/JPY– the Dollar settled at 157 Yen, modestly up from Friday’s opening at 156.75. Look for immediate resistance today in the USD/JPY pair at 157.15 (overnight high traded was 157.14). The next resistance level can be found at 157.45 and 157.75. On the downside, immediate support lies at 156.70 (overnight low). The next support level is found at 156.40 and 156.10. Look for more choppy trading, with today’s likely range between 156.00 and 158.00. Tin helmets on, get ready to rumble in this currency pair.

• AUD/USD – the Aussie Dollar gained versus its US counterpart to finish at 0.6630 (0.6605). Look for immediate resistance at 0.6660 and 0.6700. On the downside, immediate support can be found at 0.6600, 0.6570 and 0.6540. Look for the Aussie to trade a likely range of 0.6550-0.6650. Prefer to sell Aussie on strength.
• EUR/USD – the shared currency benefitted from a modestly weaker US Dollar, settling at 1.0850 from Friday’s opening at 1.0812. On the day, look for immediate resistance at 1.0870 followed by 1.0900 and 1.0930. Immediate support can be found at 1.0810, followed by 1.0780 and 1.0740. Look for more choppy trade, likely between 1.0810 and 1.0910. Looking to sell EUR/USD rallies to 1.0900.
• GBP/USD – the British Pound climbed 0.3% against the US Dollar to 1.2740 at the New York close. On the day, look for immediate resistance at 1.2770 and 1.2800. Immediate support can be found at 1.2700, 1.2670 and 1.2640. Look for Sterling to consolidate in a likely trading range today of 1.2670-1.2770. Preference is to sell Sterling on strength.

Happy Monday and trading all. Have a good week ahead. 

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