The U.S. Dollar index has seen a modest 0.2%
rise to 105.30 this week, while the EURUSD has experienced a slight 0.1%
decline to 1.07550. Other major reserve currencies have followed a similar
trajectory, with the exception of the Japanese Yen, which has lost 1.1% to
154.60.
Several factors have contributed to the recent
fluctuations in the Dollar. Firstly, the Bank of Japan (BoJ) intervened in the
currency market twice, significantly impacting the USDJPY exchange rate. The
first intervention occurred on April 29, when the USDJPY reached 160.16,
prompting the BoJ to inject around $36.5 billion to support the Yen. A second
intervention followed on May 1, with the BoJ injecting $22.5 billion, bringing
the USDJPY down to 153.00.
The Dollar also reacted to the unexpectedly
dovish statement from the Federal Reserve (Fed) after its May 1 meeting.
Despite rising inflation in February and March, the Fed announced a reduction
in its quantitative tightening program to $25 billion per month from $60
billion starting June 1. Fed Chair Jerome Powell explicitly stated that there would
be no further interest rate hikes.
The USD faced further pressure following the
release of the U.S. labour market report for April, which fell significantly
short of expectations. Nonfarm Payrolls came in at 175,000 compared to the
anticipated 238,000, while the unemployment rate edged up to 3.9% and average
hourly earnings slowed to 0.2% MoM.
Despite these downward factors, the WisdomTree
Bloomberg U.S. Dollar Bullish Fund (USDU) reported net capital inflows of $1.3
million last week, indicating sustained interest in the Dollar. Investors
appear hesitant towards the declining Dollar amidst a rising S&P 500 index,
likely increasing positions in other safe haven assets in anticipation of
potential turbulence in May and June.
Meanwhile, Richmond Fed President Tom Barkin
and New York Fed President John Williams already contributed to the dovish
message of the Fed. Neel Kashkari form the Minneapolis Fed, Fed Governors Lisa
Cook and Michele Bowman are likely to sound dovish too this week. Most
important sounded the message from Japan's vice minister of finance for
international affairs, Masato Kanda, when he indirectly admitted that no further
interventions are planned by saying that the authorities would act if excessive
moves triggered by speculators negatively impact the daily lives of people.
The outlook for the EURUSD suggests a movement
towards 1.09300-1.10300 by the end of May, with a potential retreat to
1.07000-1.07300 before a rebound towards 1.08000-1.08300. Monitoring the
capital balance of the USDU could provide insights into the future movement of
the Greenback.
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