USDJPY renews 34-year high as US Dollar cheers risk aversion, hawkish Fed concerns

The risk appetite improves early Monday as market players expect no more escalation in the Israel-Iran tensions as global players, as well as some Israeli officials, hesitate to support Jerusalem in its attack on Tehran. Further, hopes of more stimulus from China and mixed data ahead of the US Retail Sales also allow the sentiment to improve of late.

Amid these plays, the US Dollar Index (DXY) retreats from the highest level since November 2023 and allows the EURUSD, as well as the GBPUSD, to recover from their respective monthly lows. However, the USDJPY jumps to a fresh high since 1990 amid fears of long-term divergence between the monetary policies of the Federal Reserve (Fed) and the Bank of Japan (BoJ). Even so, the AUDUSD jumps the most among the G10 currencies versus the Greenback amid the upbeat mood and positive performance of commodities.

Moving on, Gold price consolidates the biggest daily fall in two months while picking up bids to challenge the all-time high whereas Crude oil extends Friday’s fall amid fears of low demand, while ignoring supply-crunch woes.

Elsewhere, BTCUSD and ETHUSD both stay firmer for the second consecutive day, extending the weekend rebound from the monthly low, on optimism ahead of April 20’s Bitcoin halving.

Following are the latest moves of the key assets:

• Brent oil drops back below $90.00, down 0.85% intraday near $89.80 by the press time.
• Gold price reverses the previous day’s pullback from an all-time high with mild gains near $2,353 at the latest.
• The USD Index seesaws near 106.00, posting mild losses near the highest level since early November 2023.
• Wall Street closed in the red while the Asia-Pacific stocks edged lower. Further, European and UK shares print mild gains during the initial trading hour.
• BTCUSD and ETHUSD both stay firmer with mild gains to around $66,300 and $3,240 at the latest.

US Dollar retreats amid cautious optimism…

The US Dollar jumped to a multi-day high on Friday on concerns about Iran’s immediate attack on Israel, which proved right. However, news that Tehran’s military retaliation to previous attacks on Jerusalem won’t lead to an escalation of geopolitical woes allowed market players to take a breather and paused the US Dollar bulls early Monday. Additionally, the US rejection to support Israel if it strikes back at Iran and hopes of witnessing more stimulus from China also underpinned cautious optimism so far today. Alternatively, the news about new US and UK sanctions on deliveries of any Russian supplies produced after midnight on Friday challenged the risk-on mood.

Although likely inaction on the geopolitical front allowed the US Dollar bulls to take a breather at the multi-month high, the hawkish concerns about the US Federal Reserve’s (Fed) rate actions kept the Greenback on the front foot, especially after last week’s upbeat US inflation clues.

Apart from the US inflation clues, comments from the Fed officials also allowed the USD to ignore softer prints of the UoM Consumer Sentiment Index for April, 77.9 versus 79.0 expected and 79.4 prior. It should be noted that the University of Michigan’s (UoM) one-year and five-year inflation expectations rose and defended the market bias about a delay in the Fed’s rate cuts.

Talking about the comments from the Federal Reserve officials, Atlanta Fed President Raphael Bostic said, “Inflation will keep easing but slower than we would like.” On the same line, San Francisco Federal Reserve Bank President Mary Daly said that there is absolutely no urgency to adjust the policy rate. Further, the new President of the Federal Reserve Bank of Kansas City Jeffrey Schmid also defended the current state of the US monetary policy whereas Chicago Fed President Austan Goolsbee said, “The question of the "last mile" on inflation is "a little harder”. At last, Boston Fed President Susan Collins also mentioned that at some point it would be appropriate to ease, but we are not at that point yet.

As the US Dollar retreats, the EURUSD manages to rebound from a 5.5-month low. However, the dovish bias about the European Central Bank (ECB) prods the Euro pair’s corrective bounce. That said, French central bank head and a member of the ECB Governing Council François Villeroy de Galhau crossed wires during the weekend via a French media named Le Journal du Dimanche while saying, “The European Central Bank is likely to cut interest rates in June.” Further, the ECB’s survey of inflation kept showing a downtick in the headline inflation from 2.4% in 2024 to 2.0% in 2025 and 2026 both, of which in turn exerts downside pressure on the Euro pair.

On the other hand, the GBPUSD also recovers from the lowest level since late November 2023 amid a broad US Dollar pullback, as well as due to Friday’s hawkish statements from Bank of England (BoE) Governor Andrew Bailey. That said, BoE’s Bailey said, “BoE should de-emphasize the central forecast based on market interest rate expectations.”

Moving on, USDJPY ignores the US Dollar’s retreat and jumps to a fresh high since 1990, up nearly half a percent around 154.00, as market players anticipate a wider divergence between the monetary policy of the Fed and the Bank of Japan (BoJ) to prevail for long. In doing so, the Yen pair buyers also ignore improvements in Japan’s Machinery Orders for February. It should be noted that the Japanese officials’ verbal intervention offers intermediate pullbacks in the USDJPY prices at a multi-year high.

Further, New Zealand’s BusinessNZ Services PMI dropped to the lowest level in seven months, as well as slipped beneath the 50.0 level, while suggesting a contraction in the services activities in March. The same challenges the NZDUSD pair’s rebound from a five-month low despite the US Dollar’s retreat from a yearly high.

It should be noted that the AUDUSD pair becomes the biggest gainer of the US Dollar’s retreat as commodity prices recover Friday’s losses. Additionally, a record jump in Aluminium and Nickel, as well as the upbeat performance of Iron Ore, Australia’s top export item also allowed the Aussie pair to rebound from a two-month low.

On a different page, stocks in the Asia-Pacific zone remain downbeat while tracking Wall Street’s losses, despite China’s positive move, whereas US Treasury bond yields edged higher. That said, Gold price reverses the previous day’s pullback from the record high but crude oil drops despite looming supply crunch fears from the Middle East. Moving on, BTCUSD and ETHUSD extend Sunday’s recovery from monthly lows, after falling in the last two consecutive weeks, ahead of this week’s Bitcoin halving event.

• Strong buy: USDCAD, USDJPY, US Dollar
• Strong sell: AUDUSD, NZDUSD, GBPUSD
• Buy: BTCUSD, ETHUSD, Nasdaq, Gold
• Sell: DAX, FTSE 100, BTCUSD, EURUSD

US Retail Sales, geopolitics eyed…

While updates about the Israel-Iran war will entertain the momentum traders, the US Retail Sales for March, NY Empire State Manufacturing Index for April and Eurozone Industrial Production will also be important to watch for clear directions. That said, a likely softening in the US data and improvement in EU numbers could allow the EURUSD pair to extend the latest rebound while any surprise could join the geopolitical woes to propel the US Dollar further toward the north.

May the trading luck be with you!