Yen Falls to One-Year Low, Buck Keeps Rising

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Yen Falls to One-Year Low, Buck Keeps Rising

MARCH 30, 2021

The U.S. Dollar is trading in stronger ranges across the board as successful vaccine efforts in the United States along with the potential for major spending in infrastructure are giving yields reason to rise. 

Overview

While most of the world seems to be short-handed in their fight against COVID, there is hope for fully re-opening of the U.S. economy in July. Indeed, the situation the U.S. faces right now is more optimistic than the second half of last year, which is naturally translating into appreciation for the buck.

As the Suez Canal returns to regular ship movement, we will monitor if there is growth in the risk-on sentiment, but at the moment all things are helping dollar advancement. We have a plethora of items to digest this week as we hear details from President Joe Biden about his agenda tomorrow while also looking at oil inventories. Thursday brings on China’s Purchasing Managers Index figures and Friday ends with some taking off for Easter, but us paying close attention to the U.S. Employment Situation.


What to Watch Today…

  • No major events scheduled for today

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EUR  

The Euro remains trending downward as the reality of COVID makes the future for economic growth seem bleak. European Central Bank officials have recently made comments about the need to continue providing an accommodative environment, and now some are even advocating for no sharp return to the policies of tightening.

Vitas Vasiliauskas, EU Governing Council member as well as head of Lithuania’s central bank commented that in the past, the ECB had been too quick to raise interest rates and cut QE-purchases, but that with this new reality it would be best to not change policy for years to come. The ECB President Christine Lagarde may not entirely disagree as she looks to expand the ways that she can aid more than just the Euro-zone banks.

JPY  

The Japanese Yen fell to a one-year low against the greenback as global markets continue to swing in the midst of doubt about the rest of the globe’s ability to overcome the pandemic. With a determined policy of controlling the yield curve of their treasury bonds, the Bank of Japan has differentiated itself big-time from Fed thinking, and thus rising U.S. yields have caused a 5.9% depreciation for the Yen. 

It is possible that this policy of maintaining yields and the curve at desired levels through capital interventions is coming to an end. Recent talk about allowing the curve to do what it wants is adding to speculators’ thinking that JPY is undervalued and has too many short-bets against it. We agree that Yen has room to grow but wonder how rapidly this will happen. Our forecasts do shoot for strengthening the second half of the year.

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