Apr 15 2024: The dollar maintained its stability on Monday, sustaining its most substantial weekly gain since 2022, as the likelihood of persistently high U.S. interest rates and escalating tensions in the Middle East provided support.
Last week, the dollar strengthened by 1.6% against a basket of six major currencies following an unexpected uptick in U.S. inflation figures, casting doubt on expectations for U.S. rate reductions. In contrast, European policymakers hinted at potential rate cuts within a few months.
Market movements on Monday appeared to reflect reduced expectations of Federal Reserve rate cuts more than the weekend’s Iran attack on Israel, which elicited a relatively muted response from the broader market.
“It’s premature to make judgments,” remarked Jason Wong, BNZ’s senior market strategist in Wellington. “The weekend’s attack was largely symbolic, with minimal damage intended. Now, the focus shifts to Israel’s response.”
Iran’s warning of an attack on Israel led to over 300 drones and missiles launched over the weekend in retaliation for what Iran claimed was an Israeli strike on its Damascus consulate. Although the missile volley caused limited damage, Iran stated it considered the matter resolved.
The dollar index, gauging the currency against six others, remained nearly unchanged at 105.92, slightly below Friday’s peak of 106.11, marking a 5-1/2 month high.
Chris Turner, ING’s global head of markets, highlighted the dollar’s appeal as a safe-haven currency due to ample liquidity, high U.S. deposit rates, and energy self-sufficiency.
On Monday, the yen experienced significant depreciation, hitting a 34-year low at 153.93 against the dollar.
The yen’s decline revived speculation of potential currency intervention. Japanese Finance Minister Shunichi Suzuki indicated close monitoring of currency movements and readiness to act if needed.
“If the dollar-yen rate reaches 155, Tokyo might intervene,” suggested ING’s Turner.
Investors’ reduced expectations of Fed rate cuts were evident as they pushed back the anticipated start of easing to September following last week’s robust consumer price report.
“This week lacks significant data, so attention will turn to Fedspeak, with over a dozen voting members on the FOMC expected to emphasize patience post the strong CPI print last week,” noted Nicholas Chia, Asia macro strategist at Standard Chartered Bank.
Bitcoin, which dropped below $62,000 on Sunday, rebounded to $66,381, down $10,000 or 15% from its recent highs.
