Dollar and Yen Drives Lower, Sterling and NZD Remains Intact

Today, there is more selling in the Dollar and Yen. On rising expectations of RBNZ rate rises, the New Zealand Dollar is currently the greatest gainer. While the Australian dollar is also strong, the Sterling is slightly dominating the show, thanks to fresh Euro buying. ECB governors’ cautious comments aren’t helping the Euro, even though it’s still gaining against the weak Dollar and Yen.

François Villeroy de Gahau, a member of the European Central Bank Management Committee and Chairman of the Bank of France, said that he expects the French economy to return to pre-pandemic levels by the end of the year. He admitted that the auto industry was underperforming, but “the economy is performing well.”

He also emphasized that “there are still big differences in energy price increases and overall inflation.” He expects the inflation rate to return to below 2% by the end of next year. “For example, today the European Central Bank has no reason to raise interest rates next year.” However, “we remain highly vigilant about inflation,” he added. Regarding the risk of China’s Evergrande becoming Lehman Brothers, Villeroy said that “history will not repeat itself.” “I think Evergrande is mainly China’s problem,” he added.
The price of the US dollar vs. a basket of rival currencies, as measured by the DXY index, has rebounded from the 93.50 mark and is currently on a run to 93.80. In tandem, US rates are climbing, with the 10-year benchmark hitting a new daily high of 1.642 percent, with a pivot of 1.706 percent set for 13 May. “Global yields are stabilizing following yesterday’s panic swings,” analysts said but added that the inflation debate is far from over, given supply chain difficulties and higher commodity prices still circulating.

Following Governor Bailey’s hawkish comments over the weekend, the UK rate market moved to price in additional front-loaded rate hikes from the Bank of England (BoE), causing Sterling to jump back to within a touching distance of the 1.3800-level. The Sterling is still not reaping the full benefits of the current rapid rise in UK rates. Yesterday, the UK rate market moved substantially higher to fully price in a rate hike by the Bank of England at their next policy meeting in November.”

During the overwhelming risk-on trend on Tuesday, the safe-haven US dollar saw intense selling and plummeted to three-week lows. As a result, the perceived riskier kiwi received a substantial boost, assisting the NZD/USD pair to acquire strong follow-through traction for the fifth day in a row.

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