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[MARKET ANALYSIS] USD buoyed by geopolitics, USD/JPY rose above 160.00 before slipping on hawkish BoJ SOO and jawboning

The USD is being buoyed by ongoing geopolitical tensions, with notable strength against most G10 currencies, except for the JPY which initially rallied but fell after a hawkish BoJ summary raised concerns about potential intervention.

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[MARKET ANALYSIS] USD buoyed by geopolitics, USD/JPY rose above 160.00 before slipping on hawkish BoJ SOO and jawboning

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  • DXY is currently trading within a 100.05-100.34 range, with very mild gains, as the geopolitical situation continues to keep the Dollar stronger. Near-term upside could see the index retest the Monday 16 high at 100.48. The geopolitical situation remains tense, with the weekend events seemingly showing no signs of near-term peace. The Iran-backed Houthis entered the war for the first time, whilst President Trump suggested that the US could take Kharg Island “very easily”.
  • Domestically, tier-one US data is lacking today, but today will see the release of a slew of labour market indicators ahead of the NFP report on Good Friday. Much of the focus today will be on Fed Chair Powell, where markets are guided to a Q&A segment (but no next).
  • Given the USD strength, G10s are weaker across the board (ex-JPY). The Antipodeans lag, given the risk-tone and after the PBoC set a weaker yuan fix. The EUR slipped below the 1.1500 soon after the European cash open, and was ultimately little moved to the release of several German State CPI metrics, whereby key areas such as Bavaria and North Rhine Westphalia rose more than what is expected for the Nationwide figure, due at 13:00 BST. As it stands, EUR/USD holds towards the lower end of a 1.1487-1.1521 range.
  • USD/JPY rose above the 160.00 mark overnight, peaking at 160.46 – levels not seen since mid-July 2024. However, the pair then trundled lower heading into the BoJ Summary of Opinions (Mar), which was net hawkish. It made reference to potentially falling behind the curve, citing wage developments and the geopolitical situation, and highlighted that “the size of the hike” needs to be considered as the Middle East situation unfolds. This led USD/JPY below the 160.00 mark, before then taking another leg lower as Japanese officials provided some jawboning. The likes of top FX diplomat Mimura said “bold action may be needed”, whilst BoJ Governor Ueda said the Bank is watching currency moves closely. Into European hours, another Japanese official highlighted that they are watching market moves with an “extremely high sense of urgency”, spurring another bout of modest strength in the JPY.
  • Whether verbal intervention remains an effective tool for Japanese officials remains to be seen. Traders may begin to question whether Japan would want to enact physical intervention during a turbulent Middle Eastern situation; some analysts have also highlighted that, given the recent pressure in USTs, Japan may lack support from the US to intervene, as it could further exacerbate the pressure in US debt.
  • Month-End: BofA flags strong USD buying, with USD/CHF the standout signal and potentially one of the largest buying opportunities this year, alongside some inflows into EUR assets and outflows from JPY and GBP. Credit Agricole also sees moderate USD buying, highlighting USD/NOK as the strongest signal. Barclays notes broad USD strength against most majors, with more moderate buying versus EUR, JPY and GBP.
Context

The rise of USD/JPY above 160.00 indicates market positioning ahead of significant labour data this week, but Japanese officials' jawboning has tempered gains, suggesting they are prepared to act if necessary to stabilize the currency amid geopolitical uncertainty.

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