The U.S. Dollar Index (DXY) recently reached a five-month high, driven by unexpectedly strong U.S. retail sales, as major currencies like the Japanese yen and sterling faced downward pressure.
The Dollar Index, which measures the dollar against a basket of six major currencies, has reached 106.125, approaching its recent peak of 106.39—the highest point since November 2023. This climb is largely fueled by U.S. retail sales, which surged by 0.7% last month, significantly outstripping the expected 0.3%.
The strengthening dollar has particularly impacted the Japanese yen, which has slumped to its lowest level since 1990. Currently trading around 154 per dollar, the yen’s weakness has triggered speculation about possible intervention by Japanese authorities, concerned with the rapid depreciation and its effects on the economy.
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Effects on other major currencies
In currency markets, the GBP/USD slipped 0.1% to 1.2438, with the British pound hovering near a five-month low following reports indicating a minor slowdown in UK wage growth. Moreover, increases excluding bonuses rose only 6.0% year-on-year in February, slightly down from 6.1% previously. This shift suggests a possible plateau in wage inflation, potentially giving the Bank of England room to consider interest rate reductions.
Similarly, the euro edged up to $1.0626 but stayed close to its lowest point since November 2nd, weighed down by the European Central Bank’s hint at a possible rate cut in June. The EUR/USD pair fell to 1.0615, demonstrating persistent investor worries about the economic difficulties facing the eurozone.
Effects on Asian markets
The substantial depreciation of the yen is alarming for the broader Asian market, igniting concerns over economic stability and prompting market participants to anticipate Japan’s potential countermeasures. This situation underscores the deep interconnectedness of global financial markets, where significant fluctuations in a major currency can have wide-reaching implications, influencing trade balances and economic strategies across borders.
Meanwhile, the Chinese yuan briefly fell to 7.2422 against the dollar but recovered after China reported stronger-than-expected GDP growth of 5.3% for the first quarter. This growth, surpassing forecasts, has offered temporary respite amidst broader market uncertainties.
The Australian dollar dropped 0.45% to $0.6414, having touched its lowest since Nov. 14.
Despite the fluctuating performance of other currencies, the U.S. Dollar Index managed a slight increase of 0.04%, achieving its highest level since early November at 106.23. This rise underscores the sustained confidence in the U.S. economy, further reinforced by strong retail sales figures and continuous geopolitical tensions, keeping the dollar a preferred safe-haven asset.
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