US FX WRAP: Dollar hit as risk-on accelerates on drop in oil; JPY outperforms on suspected JPY intervention

The dollar was broadly weaker against peers as risk-on sentiment across equities fed into FX markets. Yen strength exacerbated the move after jawboning remarks from the top currency diplomat and finance minister. JPY strength further weighed on the DXY after Japanese PM Takaichi said she had worked to ensure the passage of Japan-related vessels through the Strait, following a call with the Iranian President. Later, Nikkei reported that Japan was said to have intervened in FX, with a government official confirming the intervention to Nikkei. USD/JPY hit lows of 155.56 from earlier highs of 160.73.

A muted USD reaction was seen to GDP growth of 2.0% (exp. 2.1%), in-line March PCE readings and initial claims hitting their lowest level since 1969. Geopolitical developments continued to point to an impasse in US-Iran talks, with Axios reporting that Centcom was due to brief Trump on new plans for potential military action in Iran on Thursday.

EUR saw smaller gains than its peers after a broadly expected ECB announcement, with rates maintained and commentary acknowledging the increasingly stagflationary environment that is emerging. The ECB stuck to the script on data-dependent and meeting-by-meeting guidance. ECB sources via Reuters noted that policymakers see a June hike as very likely; some advocated a move in April but were okay with waiting until June.

EUR/GBP was lower, helped by the hawkish tilt in the BoE decision to hold, with Pill voting for a 25bps hike. BoE Governor Bailey said he would not describe the rate decision as dovish and that the market reaction to the BoE rate decision had been very sensible. Cable hit a new April high of 1.3612, with EUR/GBP approaching March lows of 0.8612.