Powell said the Fed was “not far” from the confidence it needed to reduce rates
The dollar is set to experience its most significant decline of the year this week, as Federal Reserve Chair Jerome Powell expressed confidence in cutting interest rates in the coming months. Meanwhile, the yen has strengthened due to growing speculation of a rate hike in Japan.
Traders were on edge, resulting in small movement in early Asia trading, as they await the release of U.S. employment data later in the day. This data could either confirm or confound market expectations of a rate cut by June.
Powell said the Fed was “not far” from the confidence it needed to reduce rates.
The European Central Bank decided to keep its benchmark rate unchanged at 4% overnight, but hinted at a potential cut in June. Despite this, the euro rose because the Fed funds rate currently stands at 5.25-5.5%, leading investors to believe that the US has more room for rate cuts.
During the Asia session, the euro reached its highest level in almost two months at $1.0954, placing it back within the range it has maintained for a year. It has gained 1% against the dollar this week.
The yen has experienced a 1.6% increase this week, marking its most substantial percentage rise since December. Policymakers have observed signs of a positive wage-price cycle sustaining inflation, which sets the stage for Japan’s first interest rate increase in 17 years. In early Asia trade on Friday, the yen surpassed its 50-day moving average and reached its strongest level in a month at 147.54.
There has been a pull forward of rate hike expectations for Japan, HSBC analysts said in a note to clients. Considering that short yen speculative positions are now at extreme levels, then the yen can probably avoid a ‘buy the rumour, sell the fact’ situation when the BOJ does hike, and dollar/yen can still fall further.
The dollar’s weakness this week has also resulted in a 1.5% and 1.2% increase in the Australian and New Zealand dollars, respectively.
Sterling has risen by 1.3% this week, reaching a 2024-high of $1.2820.
The Australian dollar is currently at its highest level since mid-January at $0.6629, while the New Zealand dollar has reached a week high of $0.6183.
