Forex News
Societe Generale economists argue that the British Pound (GBP) and Gilts face a pivotal period as the Bank of England (BoE) reacts to persistent inflation and wage pressures, which have slowed the pace of rate cuts and hurt long-end Gilts. They highlight that GBP/USD has pulled back after failing near 1.3660 and slipping below the 200‑DMA, with the moving average around 1.3430 now a key hurdle and warn that inability to clear this level could extend downside towards the March low at 1.3220/1.3150, with a break below opening a deeper downtrend. Intraday, support is seen at 1.3220 and resistance at 1.3430.
Sterling pressured by technical barriers
"For sterling and Gilts, a pivotal week could lie ahead for the BoE and the future of the Starmer government. Inflation and fears of second round effects tied to wages have forced the BoE to go slow on lowering rates and have dented the appeal of Gilts in the long end. There is a non-negligible possibility that chief economist Pill is joined by other MPC members voting for a rate hike at the next meetings if core CPI comes in hot on Wednesday."
"There could be relief if inflation comes down in April. SG economics forecast a dip in headline to 3.0% yoy and core to 2.6% yoy, in line with consensus. Private sector wages are forecast to rise 3.1% yoy for the 3-month period ending March. Gilts have not been aided by the political storm engulfing the Labour cabinet and a possible swing to the Left."
"Former Health Secretary Streeting announced his intention to challenge PM Starmer. The return of Burnham to Westminster is not without complications, requiring victory over Reform and the Greens in the Makerfield by-election (likely 18th June). Both Streeting and Burnham want Britain to rejoin the EU but Makerfield voted in favour of leaving in 2016."
"GBP/USD has staged a steady pullback after encountering strong resistance near 1.3660 earlier this month. The pair has fallen below the 200- DMA, highlighting a lack of steady upward momentum."
"The moving average, currently around 1.3430, may act as a short-term hurdle. An inability to overcome this resistance could result in continued downside. The March low near 1.3220/1.3150 is next support zone. A break below this may lead to a deeper extension of the downtrend."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)
- NZD/USD advances on Monday despite weaker-than-expected Chinese economic data.
- The US Dollar retreats as traders take profits after the recent rally driven by hawkish Fed expectations.
- Geopolitical tensions in the Middle East continue to support demand for safe-haven assets.
NZD/USD rebounds around 0.5860 on Monday at the time of writing, up 0.35% on the day, after earlier touching a low near 0.5822 following disappointing economic data from China. The rebound in the pair comes as the US Dollar (USD) corrects after its recent rally, with the US Dollar Index (DXY) losing 0.14% around 99.15 at the time of press.
Data released on Monday by the National Bureau of Statistics (NBS) showed that China’s Retail Sales rose only 0.2% YoY in April, compared with 1.7% previously and well below market expectations of 2%. Meanwhile, Industrial Production increased 4.1% YoY, down from 5.7% previously and below the 5.9% consensus forecast.
These figures initially weighed on the New Zealand Dollar (NZD), which is often seen as sensitive to the Chinese economic outlook due to the close trade ties between the two economies. However, the pullback in the Greenback ultimately allowed NZD/USD to regain ground during the European session.
The corrective move in the US Dollar comes after several days of strong gains driven by rising US Treasury yields and expectations of tighter monetary policy from the Federal Reserve (Fed). According to ING, the recent rise in the US 10-year Treasury yield, now at its highest level since early 2025, is increasing pressure on the Fed to adopt a more hawkish tone.
Markets continue to closely monitor geopolitical tensions in the Middle East. Comments from United States (US) President Donald Trump regarding Iran, as well as ongoing negotiations through Pakistani mediation, are maintaining a cautious mood across financial markets. Reports that Iranian and Omani technical teams met last week in Oman to negotiate a mechanism for safe transit in the Strait of Hormuz, also help to support market sentiment.
New Zealand Dollar Price Today
The table below shows the percentage change of New Zealand Dollar (NZD) against listed major currencies today. New Zealand Dollar was the strongest against the Japanese Yen.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.13% | -0.33% | 0.05% | -0.06% | -0.15% | -0.34% | -0.21% | |
| EUR | 0.13% | -0.21% | 0.17% | 0.06% | -0.04% | -0.22% | -0.09% | |
| GBP | 0.33% | 0.21% | 0.38% | 0.25% | 0.18% | 0.00% | 0.12% | |
| JPY | -0.05% | -0.17% | -0.38% | -0.15% | -0.22% | -0.44% | -0.28% | |
| CAD | 0.06% | -0.06% | -0.25% | 0.15% | -0.08% | -0.28% | -0.14% | |
| AUD | 0.15% | 0.04% | -0.18% | 0.22% | 0.08% | -0.18% | -0.03% | |
| NZD | 0.34% | 0.22% | 0.00% | 0.44% | 0.28% | 0.18% | 0.14% | |
| CHF | 0.21% | 0.09% | -0.12% | 0.28% | 0.14% | 0.03% | -0.14% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the New Zealand Dollar from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent NZD (base)/USD (quote).
- USD/CAD ticks lower to near 1.3735 as the US Dollar comes under pressure.
- Iran is focused on ending the war at this stage.
- Investors await Canadian CPI data for April and FOMC minutes.
The USD/CAD pair trades marginally lower to near 1.3735 during the European trading session on Monday. The Loonie pair faces selling pressure as the US Dollar (USD) turns upside down due to hopes that the United States (US) and Iran will break the deadlock and reach a deal soon.
US Dollar Price Today
The table below shows the percentage change of US Dollar (USD) against listed major currencies today. US Dollar was the weakest against the British Pound.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.12% | -0.34% | 0.05% | -0.06% | -0.11% | -0.34% | -0.22% | |
| EUR | 0.12% | -0.23% | 0.18% | 0.05% | -0.01% | -0.22% | -0.10% | |
| GBP | 0.34% | 0.23% | 0.40% | 0.28% | 0.23% | 0.00% | 0.13% | |
| JPY | -0.05% | -0.18% | -0.40% | -0.15% | -0.18% | -0.44% | -0.29% | |
| CAD | 0.06% | -0.05% | -0.28% | 0.15% | -0.04% | -0.27% | -0.15% | |
| AUD | 0.11% | 0.00% | -0.23% | 0.18% | 0.04% | -0.21% | -0.07% | |
| NZD | 0.34% | 0.22% | -0.01% | 0.44% | 0.27% | 0.21% | 0.13% | |
| CHF | 0.22% | 0.10% | -0.13% | 0.29% | 0.15% | 0.07% | -0.13% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the US Dollar from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent USD (base)/JPY (quote).
As of writing, the US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, trades 0.14% lower to near 99.13.
A spokesperson from Iran’s Foreign Ministry said during the day negotiations with the US through Pakistan are still ongoing, and Tehran is “focused on ending the war at this stage”.
In the European session, US President Donald Trump also said in an interview with Fortune that Iran is dying for a deal.
Meanwhile, the Canadian markets will be closed on Monday due to Victoria Day. Going forward, investors will focus on the Canadian Consumer Price Index (CPI) data for April and the Federal Open Market Committee (FOMC) minutes of the April policy meeting, which will be released on Tuesday and Wednesday, respectively.
USD/CAD technical analysis
USD/CAD drops to 1.3735 after failing to extend its advance above the 50% Fibonacci retracement of the 1.3550-1.3967 leg at 1.3756. The pair trades above the 20-day Exponential Moving Average (EMA) at 1.3696, suggesting that the near-term bullish bias is still intact.
The Relative Strength Index (14) at around 56 leans modestly bullish, yet momentum strength has not been sufficient to force a clear break through the nearby retracement ceiling.
On the topside, initial resistance is located at the 50% Fibonacci retracement at 1.3757, followed by the 61.8% level at 1.3807; a sustained move above this latter barrier would ease the current cap and open the way toward 1.3877 and the cycle high area near 1.3966.
On the downside, first support emerges at the 38.2% retracement at 1.3708, with the 20-day EMA at 1.3696 reinforcing this area; a break lower would expose the 23.6% retracement at 1.3647, ahead of more substantial structure around 1.3549.
(The technical analysis of this story was written with the help of an AI tool.)
- Dow Jones futures pare losses as sentiment improved following Iran-Oman talks to secure safe transit in the Strait of Hormuz.
- Iran confirms indirect diplomatic channels with the US remain active despite the recent escalation in bilateral tensions.
- Accelerating US inflation has led markets to rule out 2026 rate cuts, shifting market bets toward a December hike.
Dow Jones futures pare its intraday losses, remaining down by 0.56%, near 49,350 during the European hours ahead of the United States (US) regular opening on Monday.
Meanwhile, the S&P 500 fall 0.23% to near 7,410, and the Nasdaq 100 futures hovers near 29,240.
US stock futures post mixed results as market sentiment improves on easing oil prices, following the reports that Iranian and Omani technical teams met last week in Oman to negotiate a mechanism for safe transit in the Strait of Hormuz.
The Iranian foreign ministry has confirmed that indirect diplomatic channels with the United States remain operational despite the recent rise in tensions between the two nations. Officials in Tehran clarified that while the broader process of dialogue is currently navigating a highly challenging path, communication has not broken down.
During earlier trading hours on Monday, market sentiment remains deeply cautious following recent drone attacks on both the United Arab Emirates (UAE) and Saudi Arabia, alongside escalating geopolitical tensions between the United States and Iran. Additionally, US President Donald Trump plans to meet with top national security advisers to discuss military options regarding Iran, further deepening the risk of a wider regional conflict.
Recent economic data also pointed to accelerating US inflation, leading markets to fully rule out any Federal Reserve rate cuts this year. Market bets regarding the Federal Reserve's (Fed) monetary policy path continue to shift toward a potential rate hike by December.
Traders are awaiting Nvidia’s highly anticipated earnings report later this week for clues on whether the AI-driven market rally can sustain its momentum. Concurrently, upcoming financial results from major retailers like Walmart and Target will be closely analyzed to gauge how US consumer spending is weathering the recent Middle East energy price shock.
Dow Jones FAQs
The Dow Jones Industrial Average, one of the oldest stock market indices in the world, is compiled of the 30 most traded stocks in the US. The index is price-weighted rather than weighted by capitalization. It is calculated by summing the prices of the constituent stocks and dividing them by a factor, currently 0.152. The index was founded by Charles Dow, who also founded the Wall Street Journal. In later years it has been criticized for not being broadly representative enough because it only tracks 30 conglomerates, unlike broader indices such as the S&P 500.
Many different factors drive the Dow Jones Industrial Average (DJIA). The aggregate performance of the component companies revealed in quarterly company earnings reports is the main one. US and global macroeconomic data also contributes as it impacts on investor sentiment. The level of interest rates, set by the Federal Reserve (Fed), also influences the DJIA as it affects the cost of credit, on which many corporations are heavily reliant. Therefore, inflation can be a major driver as well as other metrics which impact the Fed decisions.
Dow Theory is a method for identifying the primary trend of the stock market developed by Charles Dow. A key step is to compare the direction of the Dow Jones Industrial Average (DJIA) and the Dow Jones Transportation Average (DJTA) and only follow trends where both are moving in the same direction. Volume is a confirmatory criteria. The theory uses elements of peak and trough analysis. Dow’s theory posits three trend phases: accumulation, when smart money starts buying or selling; public participation, when the wider public joins in; and distribution, when the smart money exits.
There are a number of ways to trade the DJIA. One is to use ETFs which allow investors to trade the DJIA as a single security, rather than having to buy shares in all 30 constituent companies. A leading example is the SPDR Dow Jones Industrial Average ETF (DIA). DJIA futures contracts enable traders to speculate on the future value of the index and Options provide the right, but not the obligation, to buy or sell the index at a predetermined price in the future. Mutual funds enable investors to buy a share of a diversified portfolio of DJIA stocks thus providing exposure to the overall index.
- Gold rebounds after touching a fresh low since March 30 earlier this Monday.
- The USD stands firm amid geopolitical risks and might cap gains for the bullion.
- Inflation fears reaffirm Fed hike bets, warranting caution for the XAU/USD bulls.
Gold (XAU/USD) struggles to capitalize on a modest recovery from its lowest level since March 30, touched earlier this Monday, albeit it holds steady below the $4,550 level through the first half of the European session. The US Dollar (USD) buying remains unabated in the wake of persistent geopolitical uncertainties. Furthermore, rising Crude Oil prices fuel inflationary concerns and bolster bets for a more hawkish US Federal Reserve (Fed), which lends additional support to the USD and contributes to keeping a lid on the non-yielding bullion.
In the latest developments surrounding the Middle East crisis, a drone strike caused a fire at the Barakah Nuclear Power Plant in the United Arab Emirates (UAE). Adding to this, Saudi Arabia said that it intercepted three drones launched from Iraq and also warned that it would take the necessary operational measures to respond to any attempt to violate its sovereignty and security. Furthermore, US President Donald Trump warned that Iran must get moving fast toward a deal or face severe consequences. In a post on Truth Social, Trump wrote that the “clock is ticking” and that there “won’t be anything left” if action is not taken soon, adding that “time is of the essence.”
This raises the risk of a further escalation of tensions in the Middle East and dampens hopes for a US-Iran agreement on the back of stalled peace talks, underpinning the USD's reserve currency status. Furthermore, the US blockade of Iranian ports and the effective closure of the Strait of Hormuz pushed crude oil prices to a two-week high, fueling expectations for an interest rate hike by the US central bank in 2026. According to the CME Group's FedWatch Tool, traders are currently pricing in over a 50% chance that the Fed will raise borrowing costs by the end of this year. The outlook remains supportive of elevated US Treasury bond yields, favoring the USD bulls and capping the Gold price.
The aforementioned fundamental backdrop suggests that the path of least resistance for the XAU/USD pair is to the downside. Hence, any further move up is more likely to get sold into and remain capped in the absence of any relevant market-moving macro data from the US on Monday. Moving ahead, the market focus remains glued to the FOMC Minutes on Wednesday, which will be looked for fresh clues about the central bank's policy outlook. Traders this week will also monitor the release of global flash PMIs. Moreover, the incoming geopolitical headlines might continue to inject volatility into financial markets, which, in turn, will drive the USD demand and influence the Gold price.
Meanwhile, discounts in India jumped to a record last week, while strong investment demand for physical bullion keeps Chinese premiums firm over global benchmark prices. This, however, might do little to act as a floor for Gold prices as rising Iran tensions, inflationary concerns, and hawkish Fed bets might continue to support the USD.
XAU/USD daily chart
Gold bulls remain on the sidelines; 100-day SMA holds the key
Against the backdrop of last week's failure near the 100-day Simple Moving Average (SMA) hurdle, acceptance below the $4,500 psychological mark will suggest that the broader downtrend is gaining momentum. Moreover, the Relative Strength Index (RSI) is near 40, and a negative Moving Average Convergence Divergence (MACD) reading both hint at subdued buying interest. This validates the near-term bearish bias for the Gold price.
Meanwhile, immediate focus stays on the broader support area anchored by the 200-day SMA at $4,352.59, as a sustained break beneath this zone would likely expose gold to deeper corrective losses in the sessions ahead. On the topside, the 100-day SMA at $4,790.55 is the first meaningful resistance that bulls would need to reclaim to ease the current downside pressure.
(The technical analysis of this story was written with the help of an AI tool.)
Interest rates FAQs
Interest rates are charged by financial institutions on loans to borrowers and are paid as interest to savers and depositors. They are influenced by base lending rates, which are set by central banks in response to changes in the economy. Central banks normally have a mandate to ensure price stability, which in most cases means targeting a core inflation rate of around 2%. If inflation falls below target the central bank may cut base lending rates, with a view to stimulating lending and boosting the economy. If inflation rises substantially above 2% it normally results in the central bank raising base lending rates in an attempt to lower inflation.
Higher interest rates generally help strengthen a country’s currency as they make it a more attractive place for global investors to park their money.
Higher interest rates overall weigh on the price of Gold because they increase the opportunity cost of holding Gold instead of investing in an interest-bearing asset or placing cash in the bank. If interest rates are high that usually pushes up the price of the US Dollar (USD), and since Gold is priced in Dollars, this has the effect of lowering the price of Gold.
The Fed funds rate is the overnight rate at which US banks lend to each other. It is the oft-quoted headline rate set by the Federal Reserve at its FOMC meetings. It is set as a range, for example 4.75%-5.00%, though the upper limit (in that case 5.00%) is the quoted figure. Market expectations for future Fed funds rate are tracked by the CME FedWatch tool, which shapes how many financial markets behave in anticipation of future Federal Reserve monetary policy decisions.
Standard Chartered strategists note that China’s April data showed weaker domestic demand, with both consumption and investment slowing even as exports supported industrial production. They highlight that reflation is being driven mainly by global commodity prices and that the government is likely to accelerate fiscal implementation while US-China relations should remain broadly stable.
Domestic demand slows as exports hold
"Domestic demand weakened again in April, after Q1 growth beat expectations. Exports remained the brightest spot, exceeding market estimates and supporting industrial production (IP). However, both retail sales and fixed asset investment (FAI) growth decelerated notably, echoing the weakness in credit demand data released earlier."
"While reflation continued, we believe it was largely driven by surging global commodity prices amid the AI investment boom and the Middle East conflict."
"We had expected the Middle East conflict to have a more visible economic impact in Q2, and the first signs may have emerged in April."
"The government is likely to accelerate fiscal implementation in the coming months to stabilise investment, though the Middle East may remain a key source of uncertainty this year."
"We expect intermittent flare-ups to persist, but the implicit consensus on a managed truce should reduce the risk of a disruptive deterioration in US-China relations."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)
- GBP/USD rises to 1.3380 after bouncing from six-week lows near 1.3300.
- Renewed hopes of a US-Iran peace deal have snapped the US Dollar's rally on Monday.
- BoE's Breeden has warned against rushing to hike interest rates.
The British Pound (GBP) is trading higher against the US Dollar (USD) on Monday, to pare losses from a four-day sell-off. The pair is trading above 1.3350 at the time of writing, after bouncing from six-week lows at 1.3302 earlier in the day, as rumours of ongoing peace talks between the US and Iran have hit the safe-haven USD.
Washington and Tehran would be negotiating around a recent proposal submitted by Iranian authorities, according to comments by an Iranian Foreign Ministry spokesperson released by Iranian state media. The same source affirms that Iranian and Omani technical teams met in Oman last week to discuss restoring safe passage through the Strait of Hormuz.
Trump: "The clock is ticking" on Iran
This news has eased previous concerns about the resumption of hostilities, which had crushed market sentiment during the Asian session. A drone attack on a nuclear plant in the United Arab Emirates over the weekend put further strain on a fragile ceasefire. US President Donald Trump responded, warning Tehran that “the clock is ticking," after meeting top national security officers to discuss the forward path in the conflict.
The Sterling, on the other hand, has weaknesses of its own as UK political uncertainty grows by the minute. UK Prime Minister Keir Starmer has pledged to remain in charge, but several Labour Party officials have emerged to replace him. Investors’ concerns about a disorderly leadership transition and, above all, candidates' temptations to increase government spending and trigger another fiscal crisis, are likely to keep GBP rallies limited.
In the absence of key macroeconomic releases in the US and UK, Bank of England (BoE) Deputy Governor for Financial Stability, Sarah Breeden, drew some attention earlier on Monday, warning that the bank should not be “trigger happy” with interest rates, in an interview with the Financial Times newspaper.
Pound Sterling FAQs
The Pound Sterling (GBP) is the oldest currency in the world (886 AD) and the official currency of the United Kingdom. It is the fourth most traded unit for foreign exchange (FX) in the world, accounting for 12% of all transactions, averaging $630 billion a day, according to 2022 data. Its key trading pairs are GBP/USD, also known as ‘Cable’, which accounts for 11% of FX, GBP/JPY, or the ‘Dragon’ as it is known by traders (3%), and EUR/GBP (2%). The Pound Sterling is issued by the Bank of England (BoE).
The single most important factor influencing the value of the Pound Sterling is monetary policy decided by the Bank of England. The BoE bases its decisions on whether it has achieved its primary goal of “price stability” – a steady inflation rate of around 2%. Its primary tool for achieving this is the adjustment of interest rates. When inflation is too high, the BoE will try to rein it in by raising interest rates, making it more expensive for people and businesses to access credit. This is generally positive for GBP, as higher interest rates make the UK a more attractive place for global investors to park their money. When inflation falls too low it is a sign economic growth is slowing. In this scenario, the BoE will consider lowering interest rates to cheapen credit so businesses will borrow more to invest in growth-generating projects.
Data releases gauge the health of the economy and can impact the value of the Pound Sterling. Indicators such as GDP, Manufacturing and Services PMIs, and employment can all influence the direction of the GBP. A strong economy is good for Sterling. Not only does it attract more foreign investment but it may encourage the BoE to put up interest rates, which will directly strengthen GBP. Otherwise, if economic data is weak, the Pound Sterling is likely to fall.
Another significant data release for the Pound Sterling is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought-after exports, its currency will benefit purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.
- USD/IDR continues to scale higher as the IDR remains depressed amid economic risks.
- Capital outflows from Indonesia's bond and equity markets further undermine the IDR.
- Inflation fears lift Fed rate hike bets, underpinning the USD and also supporting the pair.
The USD/IDR pair prolongs its recent well-established uptrend and advances to a fresh all-time peak, beyond the 17,700 mark, at the start of a new week.
The Indonesian Rupiah (IDR) continues to underperform on the back of economic risks stemming from the ongoing conflict in the Middle East. As Indonesia is a net Oil importer, the war-driven surge in energy prices has increased the country's import and subsidy costs. This led to capital outflows from Indonesia's bond and equity markets amid concerns over the government’s spending plans, market transparency, and central bank independence.
Meanwhile, President Prabowo Subianto spoke about the IDR's weakness and said that villagers were not affected by it because they don't transact in the US Dollar (USD). In fact, the USD Index (DXY), which tracks the Greenback against a basket of currencies, advanced to a six-week high amid concerns that the war-driven surge in energy prices will rekindle inflationary pressure and force the US Federal Reserve (Fed) to adopt a more hawkish stance.
According to the CME Group's FedWatch Tool, traders are currently pricing in over a 50% chance that the US central bank will raise borrowing costs by the end of this year. The outlook remains supportive of elevated US Treasury bond yields and favors the USD bulls, suggesting that the path of least resistance for the USD/IDR pair is to the upside. Hence, any corrective pullback might still be seen as a buying opportunity and remain cushioned.
US Dollar FAQs
The US Dollar (USD) is the official currency of the United States of America, and the ‘de facto’ currency of a significant number of other countries where it is found in circulation alongside local notes. It is the most heavily traded currency in the world, accounting for over 88% of all global foreign exchange turnover, or an average of $6.6 trillion in transactions per day, according to data from 2022. Following the second world war, the USD took over from the British Pound as the world’s reserve currency. For most of its history, the US Dollar was backed by Gold, until the Bretton Woods Agreement in 1971 when the Gold Standard went away.
The most important single factor impacting on the value of the US Dollar is monetary policy, which is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability (control inflation) and foster full employment. Its primary tool to achieve these two goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, the Fed will raise rates, which helps the USD value. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates, which weighs on the Greenback.
In extreme situations, the Federal Reserve can also print more Dollars and enact quantitative easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used when credit has dried up because banks will not lend to each other (out of the fear of counterparty default). It is a last resort when simply lowering interest rates is unlikely to achieve the necessary result. It was the Fed’s weapon of choice to combat the credit crunch that occurred during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy US government bonds predominantly from financial institutions. QE usually leads to a weaker US Dollar.
Quantitative tightening (QT) is the reverse process whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing in new purchases. It is usually positive for the US Dollar.
According to a Reuters report, the Japanese government plans to issue fresh debt as part of its funding for a planned extra budget, a scenario that would undermine the Japanese Yen (JPY) and boost yields on Japanese Government Bonds (JGBs).
Market reaction
No immediate reaction in the JPY after headlines pointing to Japan's government planning to raise fresh debt. As of writing, USD/JPY trades flat at around 158.80 after giving back its early gains.
Japanese Yen FAQs
The Japanese Yen (JPY) is one of the world’s most traded currencies. Its value is broadly determined by the performance of the Japanese economy, but more specifically by the Bank of Japan’s policy, the differential between Japanese and US bond yields, or risk sentiment among traders, among other factors.
One of the Bank of Japan’s mandates is currency control, so its moves are key for the Yen. The BoJ has directly intervened in currency markets sometimes, generally to lower the value of the Yen, although it refrains from doing it often due to political concerns of its main trading partners. The BoJ ultra-loose monetary policy between 2013 and 2024 caused the Yen to depreciate against its main currency peers due to an increasing policy divergence between the Bank of Japan and other main central banks. More recently, the gradually unwinding of this ultra-loose policy has given some support to the Yen.
Over the last decade, the BoJ’s stance of sticking to ultra-loose monetary policy has led to a widening policy divergence with other central banks, particularly with the US Federal Reserve. This supported a widening of the differential between the 10-year US and Japanese bonds, which favored the US Dollar against the Japanese Yen. The BoJ decision in 2024 to gradually abandon the ultra-loose policy, coupled with interest-rate cuts in other major central banks, is narrowing this differential.
The Japanese Yen is often seen as a safe-haven investment. This means that in times of market stress, investors are more likely to put their money in the Japanese currency due to its supposed reliability and stability. Turbulent times are likely to strengthen the Yen’s value against other currencies seen as more risky to invest in.
ING’s Chris Turner highlights that rising US Treasury yields and a bearish yield curve steepening are pressuring the Federal Reserve (Fed) to sound more hawkish, even without immediate hikes. He notes high Oil prices and higher yields are negative for risk assets but supportive for the Dollar. Turner flags US Dollar Index (DXY) resistance at 99.50 and support near 99.00 in the near term.
Fed rhetoric and yields support Dollar
"While UK politics may be blamed for a small part of the global bond market sell-off, the bigger story is 10-year US Treasury yields rising to their highest levels since early 2025. This followed a raft of higher-than-expected US inflation data last week, where final demand PPI rose at 6% year-on-year in April – levels we have not seen since early 2023. "
"This kind of inflation is pressure-testing the Federal Reserve and swinging behind the three dissenters at the April FOMC meeting, against the implicit easing bias in the FOMC statement."
"Looking at the bearish steepening in the bond market today, the narrative is one of the Fed potentially 'falling behind the curve' and the need to at least sound hawkish, even if it does not necessarily hike."
"Wednesday's release of the FOMC minutes will shine a light on the hawkish dissent; we're more interested in Fed speakers, though, with Christopher Waller due to speak tomorrow and deliver a speech on the economic outlook on Friday. His most recent speeches seem to have pushed for a prolonged pause in monetary policy, but any shift towards the need for a hike would be dramatic. Were that to be seen, the yield curve would flatten, and the dollar would probably rally further."
"DXY faces gap resistance at 99.50 and probably support at 99.00."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)
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