Dollar Up, Powell’s More Aggressive Stance Against Inflation Hurt Yen and Yuan

By Gina Lee – The dollar was up on Friday morning in Asia. The greenback headed for a seventh consecutive weekly gain on the yen and the best one-week rise on China’s yuan in more than two years, boosted by higher U.S. yields.

The U.S. Dollar Index that tracks the greenback against a basket of other currencies inched up 0.06% to 100.675 by 11:15 PM ET (3:15 AM GMT).

The USD/JPY pair edged up 0.18% to 128.62.

The AUD/USD pair was down 0.41% to 0.7341, with the Australian dollar falling 1% on Thursday and remaining near its 50-day moving average in Asian trade. The NZD/USD pair fell 0.51% to 0.6706 after the New Zealand dollar also dropped 1% overnight.

Commodity currencies fell overnight as economic growth worries and the impact of the COVID-19 lockdowns in China capped oil’s gains.

The USD/CNY pair was up 0.33% to 6.4716 while the GBP/USD pair inched down 0.07% to 1.3019.

With China easing its monetary policy and Japanese government bond yields near zero, both the yen and yuan were on downward trends. The yen is down 1.6% for the week to date and was just above Wednesday’s 20-year low of 129.43. The yuan, on its part, tumbled through its 200-day moving average throughout the week and hit a fresh seven-month low of 6.4830 in offshore trade earlier in the session.

Meanwhile, U.S. Federal Reserve Chairman Jerome Powell said overnight that a 50 basis-point rate hike was on the table at the central bank’s next meeting in May 2022. His remark, although largely consistent with market expectations, saw five-year U.S. yields climb above 3% for the first time since 2018 and eased a rally in the euro.

The euro last bought $1.0837 and remains just above a two-year low.

“The swaps market has now priced in 146 basis points of tightening for the next three (Fed) policy meetings,” Commonwealth Bank Of Australia analyst Carol Kong told Reuters.

“The dollar may receive further support from safe haven demand today if the April PMIs generate market concerns about the global growth outlook,” she added, in reference to manufacturing purchasing managers index figures due in EuropeFranceGermanythe U.K., and the U.S.

In Asia Pacific, Japanese data released earlier in the day showed that the consumer price index (CPI) n.s.a. grew 0.4% month-on-month, the national core CPI grew 0.8% year-on-year, and the national CPI grew 1.2% year-on-year in March 2022. The manufacturing purchasing managers index (PMI) for April was 53.4, and Japan also released its services PMI.

With core consumer prices rising at the fastest pace in more than two years, concerns are growing that policymakers could try and strengthen the yen. Japanese Finance Minister Shunichi Suzuki also said earlier in the day that recent drops in the yen were “sharp,”, with the remark seemingly capping the Japanese currency’s losses even as Suzuki did not voice concern during his meeting with U.S. Treasury Secretary Janet Yellen.

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