Investors are bracing for key events – release of the US GDP data and Bank of Japan’s (BoJ) policy meeting results – that may shape the trajectory of major currencies in the coming days.
USD/JPY has held steady below the 155.00 mark, mirroring the cautious sentiment prevailing in the market. This calm demeanour belies the underlying apprehension, fuelled in part by Japan’s hinted intervention plans to bolster the yen. Finance Minister Suzuki’s stern warning underscores Japan’s vigilance against excessive currency movements, reflecting growing unease over recent yen weakness.
Meanwhile, EUR/JPY hovers near the critical 165.00 threshold, with euro-zone yields experiencing a modest uptick amid tempered expectations of Fed rate cuts. ECB Vice President Luis de Guindos’ remarks signal a nuanced approach to monetary policy, acknowledging the need for flexibility amidst geopolitical tensions while hinting at a potential shift in June.
In the emerging markets arena, currencies have endured heightened volatility, propelled by a recalibration of Fed rate cut expectations and geopolitical uncertainties. The Indonesian rupiah, Mexican peso, and Philippine peso bore the brunt of selloffs, reflecting investor jitters. However, the Chilean peso and Peruvian sol showcased resilience, staging robust recoveries against the USD.
The prevailing market turbulence prompted a temporary squeeze on popular FX carry trades, exemplified by a flash crash in the Mexican peso following geopolitical ripples from the Middle East. Yet, the MXN swiftly regained its footing, underscoring resilience amidst fleeting disturbances. The broader trend of USD strength persists, fuelled by expectations of a delayed Fed easing cycle and higher US yields.
Market commentary and analysis from Luca Santos, currency analyst ACY Securities
