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[MARKET ANALYSIS] DXY regains 99 handle, JPY reaches intervention territory, EUR and GBP await policy decisions

The DXY regaining the 99 handle signals a strengthening USD, largely driven by the Fed's hawkish language and geopolitical tensions surrounding potential US military actions in Iran.

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[MARKET ANALYSIS] DXY regains 99 handle, JPY reaches intervention territory, EUR and GBP await policy decisions

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  • DXY rebounding from the APAC open gap lower, as it holds onto the Fed-driven bid higher. To recap, the FOMC left rates unchanged with a 8-4 vote split. Dissenters include Miran (voted for 25bp cut), Hammack, Kashkari and Logan (all 3 dissented on easing bias within the statement). The statement tilted hawkish, with the language describing inflation as “elevated” from “remains somewhat elevated”. In other news, a recent Axios scoop has lifted the USD, stating that US CENTCOM is to brief US President Trump on new plans for potential military action in Iran on Thursday. DXY currently trades at the upper end of a 98.81-99.00 range.
  • EUR/USD has picked up pace to the downside in recent trade, amid a firmer dollar after Axios reported of a briefing in which new plans for military action is to be presented to President Trump. Aside from geopols, the ECB is expected to keep rates unchanged at 2.0%.
  • GBP/USD currently trades at the lower end of a 1.3465-1.3495 range, mainly driven by the greenback strength. The BoE is also expected to leave rates steady at its policy confab, with focus to lie on any clues or hints towards the timing of the next move, and the MPC’s current view on market pricing.
  • USD/JPY holds above the 160.00 handle, oscillating in a 160.07-160.44 band. The breach of the psychological 160 level has, in past, prompted intervention. However, the lack of one-sided, rapid moves will make it difficult for the government to justify intervention. Moody’s Analytics notes that authorities often favour intervention in light liquidity. As it turns out, Japanese markets are closed between May 4th-6th for a public holiday.
  • Antipodeans outperform their G10 peers, as the Aussie and Kiwi rebound from Wednesday’s losses.
Context

Notably, the JPY's approach to intervention territory, particularly above the 160 level, raises concerns for Japanese authorities, especially with markets closed soon. Meanwhile, the EUR and GBP await central bank meetings which will be crucial in shaping their trajectories against the USD, as both are expected to maintain steady rates, keeping focus on future policy guidance.

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