Risk Appetite in Capital Markets Returns as Fears Fades

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The Japanese yen maintained a downtrend through last week and fared worse against commodity-based currencies as investors’ risk appetite increased.

That said, steady gains in benchmark yields, bullish rebounds in stocks, and varying central bank monetary policy expectations would continue to extend bearish pressure on the JPY. Meanwhile, impending rate hikes from the US Fed and Bank of England (BoE) did not save the dollar and Sterling from suffering bearish setbacks, as both currencies were among the weakest last week.

On the other hand, the Aussie and Kiwi ended the week as best performers amid a risk-appetite boom. Euro came in third place, although it began to show signs of weakness towards the end of the week. That said, development from the eurozone in the coming days should establish a path for the EUR, confirming if a sell-off would return.

Risk Appetite Climbs Despite Hawkish Fed Outlook

On the other side of the world, the US Fed began its monetary tightening campaign after implementing a 0.25% rate hike, bringing its prime lending rate to 0.50% last week. The Fed also noted that quantitative tightening will begin “at a coming meeting.” Fed Governor Christopher Waller added that he preferred a 0.50% rate increase but voted for 0.25% only because of the ongoing geopolitical events. This was likely the same view adopted by most FOMC members. However, this compromise creates the possibility of a more aggressive rate hike later in the year.

In other news, stocks traded positively last week, with the S&P 500 posting a significant rebound thereby breaking the critical 4416.7 resistance. Also, critical levels in the DOW (34179.07) and NASDAQ (13837.58) were defeated in the bullish resurgence last week.

Finally, the 10-year US bond yield spiked above the 2.065 high to restart a long-term upward trend last week, tapping the 2.246 high.