USD/JPY scaled a high unseen in over 20 years on Monday amid rising US interest rates and on concerns stemming from accelerating inflation, the military conflict in Ukraine, as well as from tighter COVID-19-related lockdown restrictions in Beijing and Shanghai.
“Moves in U.S. interest rates are not the only dollar support,” NatWest Markets strategists wrote in a note to clients.
“Downside risks to global growth stemming from Ukraine and China are more pressing for Europe and Asia relative to the U.S., creating an air of 2018-style dollar exceptionalism.”
The yield on US 10-year government bonds has surged 163 basis points so far this year, while underpinning the greenback’s valuation.
The US Dollar Index, which reflects the relative strength of the greenback against a basket of six other major currencies, was edging up 0.37% to 104.039 on Monday. Earlier in the trading session the DXY registered a fresh two-decade high of 104.090.
Last week the Federal Reserve raised the target range for the federal funds rate by 50 basis points and robust employment data added to expectations of more big rate increases in the future.
Markets are now pricing in a 75% chance of a 75 basis point Fed rate hike in June and over 200 basis points of tightening by the end of 2022.
Investor focus now sets on US CPI inflation report due out on Wednesday.
“Risks around U.S. CPI feel binary; a moderation from 8.5%would be mildly comforting, but a lift would doubtless revive expectations for 75 bp Fed hikes, and probably give the dollar a boost,” analysts at ANZ Bank wrote in a note.
“The idea that synchronised global tightening might proceed gently now feels like a forgotten dream.”
Meanwhile, Bank of Japan policy makers remained determined in their resolve to maintain huge monetary stimulus, the minutes of the central bank’s March meeting showed.
“Unlike the United States and the United Kingdom, Japan was not in a situation where the inflation rate would likely exceed the BOJ’s 2% price target in a sustained manner,” some of the policy makers said in the minutes release.
“It was therefore important for the BOJ to continue with monetary easing to support the economy’s recovery from the pandemic,” they noted.
As of 9:25 GMT on Monday USD/JPY was edging up 0.45% to trade at 131.124. Earlier on Monday the major Forex pair climbed as high as 131.347, which has been its strongest level since April 16th 2002 (132.180).
USD/JPY has appreciated 0.97% so far in May, following another 6.74% gain in April.
Daily Pivot Levels (traditional method of calculation)
Central Pivot – 130.48
R1 – 130.86
R2 – 131.19
R3 – 131.58
R4 – 131.96
S1 – 130.15
S2 – 129.76
S3 – 129.43
S4 – 129.10