Daily Market Comment – Yen takes another dive as US dollar rally goes into overdrive



  • US dollar charges even higher, stampedes over all major currencies
  • Yen collapses after BoJ meeting, euro in agony amid energy crisis
  • Facebook earnings cheer up stocks, Apple and Amazon next in line
Dollar rampage, euro carnage

The relentless rally in the US dollar has left a trail of destruction across the FX market, with every other major currency suffering serious collateral damage. This trend reflects both solid US economic fundamentals and the storm clouds gathering over other regions, where a deepening energy crisis has brought Europe to its knees while China remains committed to growth-crippling lockdowns.

European Commission chief Ursula von der Leyen warned companies not to succumb to Russia’s demands for payment in rubles, escalating the standoff with the Kremlin and sending natural gas prices surging - for no reason at all. Putin wants Europe to pay for gas in rubles but that is ultimately a battle of appearances. Who exchanges the euros for rubles doesn’t really matter, the economic result is the same.

The euro has been taken to the cleaners and its downfall will simply compound the Eurozone’s problems, making it even costlier to pay for imported energy and amplifying inflationary pressures. That’s a vicious spiral that will eventually hit growth by squeezing consumers further. 

Yen crumbles after BoJ 

The yen took another dive after the Bank of Japan reaffirmed its commitment to keep a ceiling on Japanese yields, squashing any speculation about policy changes when it concluded its meeting earlier today. Inflation is still very low and outside of the yen getting smoked, there isn’t any huge urgency to tighten. 

The BoJ has waited for decades for its chance to import some inflation and jolt inflation expectations back higher to get the Japanese economy running again - it won’t waste this opportunity even if it means sacrificing the yen in the process. Governor Kuroda knows what’s at stake, which is why he continues to preach patience despite growing political pressure. 

With the euro and yen stuck in the mud, sterling hamstrung by its sensitivity to stock markets, and commodity currencies trembling in fear of a demand crisis in China, all roads lead back to the US dollar. It has reclaimed its status as an ‘all weather’ currency, drawing power from expectations that the Fed will go faster than other central banks and from its reserve currency status in this treacherous environment. 

The Fed meets next week and markets have already priced in 50 basis point rate hikes at each of the next three meetings. It’s difficult to go any faster than this, otherwise there’s a real risk something breaks - whether it’s the stock market or the housing market. This would normally suggest the dollar’s rally is exhausted, but admittedly, any trend reversal is off the cards until the growth outlook for other regions starts to improve. 

Facebook lifts Wall Street

Crossing into the equity realm, Wall Street closed a volatile session virtually unchanged on Wednesday. Investors continue to grapple with a range of risks, from fading central bank liquidity to slower global growth, and the earnings season provides another reason to manage risk exposure. 

Nobody wanted to be a hero ahead of the earnings release by Meta Platforms after what happened last quarter, but the company’s results were solid this time, catapulting its shares 18% higher in after-hours trade and lifting sentiment across the entire market. 

The baton now passes to Apple and Amazon, both of which will release their results after the closing bell today. On the economic calendar, the highlights include inflation stats from Germany and the first estimate of US GDP for Q1, where there is some scope for disappointment according to the Atlanta Fed GDPNow model. 

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