19 April 2022 – Daily FX Update

Market Overview

USDJPY to new highs

Gold hovers below $2,000

China scares oil investors

FOREX

U.S. Dollar Index

The benchmark 10-year Treasury yield was last at 2.845%, after hitting its highest since December 2018. Market participants adjusted for the Federal Reserve to raise rates by 50 basis points at its May and June meetings to contain rapid inflation.

The two-year yield, which rises with traders’ expectations of higher Fed fund rates, touched 2.4459% compared with a U.S. close of 2.46%.

The dollar index was up at 100.88 after surging to 100.86 on Monday, the highest since April 2020.

Japanese Yen

The Japanese Yen weakened further and lost 0.92% to 128.13 against the Greenback. However, Japanese data released showed that industrial production grew 2% month-on-month in February 2022.

The U.S. 10-year Treasury yield was just below its three-year high of 2.884%. Meanwhile, the Bank of Japan has intervened to keep the yield on Japanese 10-year government bonds around 0% and no higher than 0.25%. Japan is monitoring how the weakening yen could impact the economy, as stability in the currency market was important, the country’s Finance Minister Shunichi Suzuki said on Tuesday.

Chinese Yuan

The People’s Bank of China (PBOC) said on Friday it would cut the reserve requirement for all banks by 25 basis points (bps), which means releasing about 530 billion yuan ($83.25 billion) in liquidity to soften the slowdown.

Investors, however, felt the slight cut might not be sufficient to reverse a sharp slowdown in the economy that could seriously affect global development.

Chinese Yuan traded on a 0.09% decline against the U.S. Dollar. Regardless, China’s gross domestic product (GDP) on Monday beat expectations with a 4.8% increase in the first quarter from a year earlier, while data on March activity showed weakness in consumption, property, and exports affected by COVID-19 curbs.

Indices

U.S. Indices

A substantial cut to global growth anticipations from the World Bank, paired with weakness in China’s economic numbers reflected discouragement in U.S. markets. The Dow Jones Industrial Average ended down 0.11%, while the S&P 500 dipped 0.02% and the Nasdaq Composite slid 0.14%.

European Indices

European stock markets are expected to open in a cautious manner Tuesday after a long weekend, with investors focusing on developments in Ukraine as Russia intensifies its assault in the east of the country. The DAX futures traded 0.3% lower, CAC 40 futures dropped 0.1%, while the FTSE 100 futures rose 0.1%. Meanwhile, the World Bank lowered on Monday its global growth forecast for 2022 by nearly a full percentage point, to 3.2% from 4.1%, citing the impact of the war.

Asia-Pacific

Asian shares traded cautiously this morning. Meanwhile, as investors weighed China’s measures to soften the economic downshift while the possibility of Fed tightening.

Australia’s ASX 200 edged up 0.66% as strong commodity prices lifted mining and energy stocks, while Japan’s Nikkei rose 0.18%.

China’s blue-chip Shanghai Composite Index rose 0.24%. Meanwhile, Hong Kong’s Hang Seng index opened down 2.4%, pressured by a slump in tech giants listed in the city amid China’s latest regulatory crackdown on the sector.

Metals

Gold was down on Tuesday morning in Asia, after hitting the $2,000 mark during the previous session. The dollar was near a two-year high and dented the safe-haven yellow metal’s appeal.

Gold futures were down 0.24% to $1,981.70 after climbing to $1,998.10 on Monday. But gold gave up most of Monday’s gains as the dollar, while 10-year Treasury yields firmed. The Fed is likely to hike its interest rate at its next couple of meetings.

Silver and palladium shed 0.1%, while platinum gained 1%.

Crude Oil

As the Chinese economy is slowing down, market participants expect crude oil consumption to decline. WTI futures traded 0.4% lower at $107.22 a barrel, while the Brent rose 0.2% to $112.90. Both benchmarks gained more than 1% in the previous session after hitting their highest level since March 28.