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Currency Market Analysis

Jun 17, 2022 | Currency Market Analysis

Global Themes

Another central bank decision, another wave of FX volatility. The greenback rebounded from a big drubbing the previous day after the Bank of Japan left interest rates at rock bottom levels, triggering another sharp slide in the yen. The greenback recovered against the euro and sterling, and was poised for a second straight week of sharp gains against the Canadian dollar. It’s been a whipsaw week for the dollar after the Fed stepped up its attack on inflation and raised its benchmark borrowing rate by a massive 75 basis points. The Fed’s biggest rate hike in decades had been the dollar’s ticket to fresh 2022 peaks. But the dollar’s rally has been punctured as other central banks step up the battle against inflation with outsized rate hikes of their own. Meanwhile, a weakening outlook for U.S. growth has knocked Treasury yields lower, dimming the dollar’s appeal. The Fed forecasting rate cuts in 2024 also put a crack in the dollar’s bullish foundation.

EUR

Euro bends but doesn’t break

Bouts of two-way volatility left the euro little changed for the week against the dollar. The euro’s bearish bias showed signs of shifting after the ECB said it would create a tool to cap rising yields, so-called fragmentation risks, for debt-vulnerable countries like Italy and Spain. The euro also caught a technical lift as it staved off a brush with its 2022 low. With the ECB poised to begin a rate hiking cycle next month, the euro may be starting to turn the corner.

GBP

Sterling subdued after wild week

Sterling turned negative for the week, though it remained more than 3 cents above the March 2020 low it had plummeted to days ago. A fifth straight interest rate hike from the Bank of England this week – and a vow to get more aggressive if inflation worsens – set the stage for sterling’s recovery. Currencies of central banks that are amenable to following in the Fed’s aggressive footsteps have started to fare better against the greenback.

CAD

C$ stages another sharp weekly slide

Canada’s dollar hovered around one-month lows against its U.S. counterpart, putting it on track for back to back weeks of sharp declines. Worries about moderating global growth weighed sharply on commodity currencies and even caused oil prices to soften from elevated levels. Oil was last at $117 after ending last week above $120.


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