Updated April 15th, 2024 at 10:50 IST

Dollar strengthens, Yen declines as US rate-cut speculation subsides

Against the Yen, the Dollar reached a 34-year high, reaching 153.69. It also reached a five-month peak against the Euro.

Reported by: Business Desk
Forex news | Image:Unsplash
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Forex news: The Dollar maintained its strength on Monday, bolstered by escalating tensions in the Middle East and expectations of sustained high US interest rates, marking its most significant weekly gain since 2022.

Last week, the Dollar surged by 1.6 per cent against a basket of six major currencies following a modest yet unsettling uptick in US inflation figures. This unexpected development cast doubt on previous forecasts of US rate cuts, especially as European policymakers hinted at potential cuts in the coming months.

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Against the Yen, the Dollar reached a 34-year high, reaching 153.69. It also reached a five-month peak against the Euro, trading near those levels early in the Asian trading session, with a Euro valued at $1.0646.

Although Iran's weekend attack on Israel triggered declines in stock markets, bitcoin, and oil, currency markets appeared to react more to diminishing expectations of Federal Reserve rate cuts rather than geopolitical tensions.

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Iran launched drones and missiles over the weekend in retaliation for what it deemed as an Israeli attack on its Damascus consulate. Despite causing limited damage, Iran announced it considered the matter concluded. Israeli ministers indicated that immediate retaliation was unlikely, leaving the region tense amid fears of further escalation.

Jason Wong, Senior Market Strategist at BNZ in Wellington, commented, "It was really a symbolic attack over the weekend... It's now over to what Israel's response will be."

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Investors have adjusted their expectations for Fed rate cuts, postponing the anticipated easing cycle to September following Wednesday's higher-than-expected consumer prices report.

Nicholas Chia, Asia Macro Strategist at Standard Chartered Bank, noted, "It is a data-light week so all eyes will turn to Fedspeak where more than a dozen voting members on the FOMC are likely to emphasize patience after last week's blowout CPI print."

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The two-year Treasury yield surged past 5 per cent on Thursday, settling at 4.9 per cent by the end of the week. The Euro experienced its most substantial weekly percentage drop since late September 2022, while sterling saw its largest weekly decline since mid-July.

As currencies of trading partners weakened, China's trade-weighted currency index reached a high not seen since March 2023, indicating a loss of competitiveness.

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Bitcoin, amidst market volatility, dipped below $62,000 on Sunday, marking a $10,000 or 15 per cent decrease from its recent highs, before rebounding to $65,343.

(With Reuters inputs.)

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Published April 15th, 2024 at 10:50 IST