Major Currencies Fall As Dollar Climbs Above 130 Yen And Euro Breaks Above $1.05

Euro, Hong Kong dollar, U.S. dollar, Japanese yen, British pound and Chinese 100 yuan banknotes are seen in this illustration, in Beijing, China January 21, 2016. REUTERS/Jason Lee

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SYDNEY, April 28 (Reuters) – The dollar rose above the psychological level of 130 yen on Thursday for the first time since 2002, after the Bank of Japan (BOJ) doubled its very low yield policy, while the euro briefly fell below another symbolic mark of $1.05.

There had been speculation in the market that the BOJ might pull back a bit given that inflation was rising and other major central banks were tightening, but it showed no hesitation. Read more

The ultra-dovish move took her away from the Federal Reserve, where markets are priced 150 basis points (bps) higher in just three meetings, and sparked another run on the dollar before anything else.

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This saw the US currency surge to 130.27 yen. It was last around 130, up 1.27%. It also took the dollar’s gains for April to 6.9%, its best month since late 2016.

“After weeks of confusing comments on the yen from government officials, the BOJ has sent a clear message – the surge in global inflation is ex-Japan, so zero rates will remain,” said Sean Callow, strategist principal of currencies at Westpac in Sydney.

“USD/JPY 130 may be a round number but it cannot be a red line, with attention likely to turn quickly to 135, the 2002 high,” he added. “The yen is not being ignored, but that’s mostly a side effect for the BOJ.”

While the BoJ keeps yields close to zero, markets are betting that the Fed will hike rates by 50 basis points in May, June and July, eventually hitting 3.0% by the end of the year.

Yields on 10-year bonds climbed 48 basis points this month to 2.83%, opening a chasm between Japanese debt.

That in turn helped lift the dollar index, which hit 103.70 on Thursday, its highest level in five years. A further push above 103.82 would see it test levels not visited since late 2002.

Other Asian currencies are also under pressure. Against the overseas-traded Chinese yuan, the dollar hit 6.6562 yuan, its highest level since November 2020.

The onshore yuan was also at an 18-month low, but a sign of nervousness among investors, the spread between the onshore and offshore yuan was at its highest since March 2020.

The euro also slipped to an over-five-year low of $1.0481, taking its losses for the month to 5%, which would be its worst fall since the start of 2015.

The currency is now drifting towards huge chart support levels ranging from $1.0500 to a 2017 low of $1.0344. A breakout would take it to depths not seen since 2002 and risk a damaging drop below parity.

The fall only adds to Europe’s economic woes as it raises the cost of energy in dollars, just as natural gas prices soar following Russia’s decision to cut off supply to the Poland and Bulgaria. Read more

“This appears to be the first overt act of energy warfare,” warned Helima Croft, head of global commodities research at RBC Capital Markets.

“The question now is whether the cut will extend to other major importers in what could quickly become a brutal test of European resolve to support Ukraine in the face of soaring energy prices and the rising recession risk.

Such risks could also make the European Central Bank reluctant to aggressively tighten, leaving it far behind the Fed. Markets currently see the ECB hitting 0.5% by Christmas.

A possible pothole for the dollar will be US gross domestic product data to be released later Thursday.

While market forecasts call for 1.1% growth, the risk is on the downside after the US trade deficit hit a record high and led to a sharp decline in net exports. Read more

NatWest Markets analysts now fear that GDP actually contracted 1.3% annualized in the first quarter. Any negative reading could temper the Dollar’s ascent, if only temporarily.

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Reporting by Wayne Cole, additional reporting by Alun John in Hong Kong; Editing by Shri Navaratnam and Kim Coghill

Our standards: The Thomson Reuters Trust Principles.

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