USD Dominance & Japan’s Worries
- USD Reigns in G10: The US dollar is enjoying a strong week, putting pressure on other currencies, especially the Japanese yen (JPY).
- Yen at 34-Year Low: The USD/JPY exchange rate has risen significantly, fueled by the Bank of Japan’s (BOJ) policy stance. Japanese officials are attempting verbal intervention to support the yen.
- Potential BOJ Action: The finance minister’s warning indicates the BOJ might directly intervene in the market by buying yen, their last remaining tool.
- Intervention Timing: The BOJ could intervene during the Easter weekend (reduced market liquidity) or wait for Friday’s US core PCE data release, hoping for downward pressure on the USD.
European Inflation Concerns
- Spain’s Rising CPI: March inflation figures from Spain show an increase in both headline and harmonized rates. This is a concern for the European Central Bank (ECB).
- Core Prices Moderate (Slightly): While core inflation eased slightly, it’s still well above the ECB’s target, indicating persistent price pressures.
- ECB’s Reluctance on Rate Cuts: Spanish data suggests inflation remains volatile, explaining ECB President Lagarde’s less dovish stance and caution on pre-committing to rate cuts.
- Market vs. ECB Expectations: Markets still expect significant ECB rate cuts this year, a view that might be challenged by ongoing inflation.
Additional Market Observations
- European Stocks Lack Direction: After a strong Q1, European shares are trading near record highs, but lacking a clear trend as investors await economic confidence data.
- Oil and Bitcoin Decline: Brent crude oil is falling, impacting energy stocks. There’s a sense of risk-aversion seen in the pullback of Bitcoin and the luxury commodity, cocoa. This could be temporary due to thin liquidity and profit-taking near month/quarter-end.