FX Weekly

FX Weekly Update – April 18th, 2022

Posted Under: Weekly updates

The U.S. Dollar is a bit quiet this morning as are most things in relation to markets with Australia, Hong Kong, Europe, and other areas of the world still observing the Easter holidays.

The buck has been mostly strengthening following a week that did not get closer to a peaceful resolution to the Russia/Ukraine war and revealed strong fears of recessionary pressures ahead. Most certainly, the conflict has created more urgency and fomented more uncertainty as the economic growth of the globe seems to be doomed to be under potential as long as there is no peace.Billionaire Roman Abramovich, the famous Russian former owner of London’s Chelsea Club, Champions of Europe, is reportedly working on negotiating a solution between Moscow and Kyiv. Meanwhile, the energy crisis continues with U.S. natural gas priced at a 13-year-high based mostly on the global supply crunch. Additionally, oil prices hit a new high following news of protests and strikes halting production in OPEC+ member Libya.We shall see if this day serves as another booster for the buck because although it is quiet out there, St. Louis Fed President James Bullard will be speaking later this afternoon. Bullard has been an active voice in promoting quicker Fed interest rate hikes.

EUR: The Euro remains volatile, but it is not full of action today as most participants continue their Springtime and Easter vacations. While the intensity of war escalates, there are some proactive actors who intend to negotiate a resolution. The isolation of Russia has not necessarily convinced Vladimir Putin Russia will suffer long-term devastation, but soon there could be an inevitable break-up with Europe when it comes to what matters most: energy exports.As Russia demands payment in Russian Rubles (RUB) for its production, the violation of financial sanctions that represents will force European nations to call for an embargo as nothing can be exchanged officially. On a positive note, Italy’s Prime Minister Mario Draghi believes the continent can be independent of Russia’s energy sooner than people think and that trying to get Putin to stop in Ukraine is pointless.

GBP: The Pound closed 0.08% lower before extending its losses this morning and fell as oil prices rose amid inflation and consumer expenditure in China fell, darkening the outlook and triggering safe-haven flows to the U.S. dollar. Meanwhile, Prime Minister Boris Johnson apologized after being punished by police in the United Kingdom for violating Covid-19 lockdown restrictions. When asked if he would resign, Johnson stated that he wanted to address the issues that the country is now dealing with. Elsewhere, The FTSE 100 finished the last week 0.7% higher, marking the sixth consecutive weekly increase. In recognition of the Good Friday and Easter Monday holidays, the FTSE 100 will be closed on both Friday and Monday.

JPY: The yen closed 0.46% lower in the previous session against the greenback. After Bank of Japan Governor Haruhiko Kuroda labeled the Yen’s decline as “extremely swift,” the Yen fluctuated. Also, markets traded cautiously at the start of the week as global inflation fears remained at the forefront of investors’ minds and trading volume remained low with many markets still closed for the Easter holidays. Meanwhile, the yield on the benchmark Japan 10-year JGB remained close to the Bank of Japan’s target ceiling of 0.25%, as the Federal Reserve’s relentless tightening and soaring global inflation weighed on government bond prices. On Monday, the Nikkei 225 Index sank 1.1%, while the wider Topix Index slid 0.9%, as Japanese markets tracked weakness in U.S. equity futures, with technology stocks leading the declines.

CAD: The Loonie closed 0.06% lower in the previous session and continues to drift lower on Monday morning against the greenback. In the latest news, Natural gas advanced while oil held gains, owing in part to the risks posed by Russia’s war in Ukraine. These include the likelihood of a de facto European Union embargo on Russian gas, as well as the danger of some crude oil restrictions in the next round of European sanctions. Meanwhile, as major central banks, including the Bank of Canada, actively tighten monetary policy, Canada’s 10-year government bond yield has risen to levels above 2.74%, the highest since January 2014. Canadian policymakers boosted interest rates by 50 basis points, a move not seen since May 2000, due to an abnormally tight labor market and the highest inflation rate since 1991.

MXN: The Mexican Peso closed marginally lower on Friday and appear to continue its losses on Monday morning against the U.S. dollar. The Mexican Peso was trading lower due to the recovery in U.S. Treasury yields. Nonetheless, the Peso was trading near a nine-month high, set earlier last week on the strength of a commodities price rebound and a hawkish Bank of Mexico. In March, the Mexican central bank raised interest rates for the seventh time in a row, to 6.5%, to alleviate inflationary pressures caused by the Ukraine conflict. In other news, President Andres Manuel Lopez Obrador failed Sunday night to regain state control of Mexico’s electrical industry, falling short of the two-thirds majority required in the lower chamber of Congress to modify the constitution.

CNY: The Chinese Yuan closed 0.10% higher in the previous session against the greenback. Following encouraging economic data that alleviated some fears about the impact of Beijing’s crackdown on coronavirus outbreaks and the crisis in Ukraine, the yield on China’s 10-year government bond surged 3.5 basis points to around 2.8%, the highest since March 10th. In the first three months of 2022, the Chinese economy expanded by 1.3% over the previous quarter, more than double market expectations of 0.6%, while industrial production increased by a better-than-expected 5% year on year in March. Despite an unexpected decision to hold the medium-term loan facility rate steady in April, the People’s Bank of China is seen decreasing its reserve requirement ratio to allow more liquidity in financial markets.