- The ECB and the Bank of England are signaling rate hikes.
- Japan has resumed monetary intervention.
It ended April with its worst performance in 10 months. A drop in demand for safe haven assets, rival central banks' intention to do so amid caution from the Federal Reserve and active dollar selling by Japan towards the end of the month acted as catalysts for a 1.7% drop in the dollar. This was even more true because, towards the end of the month, oil was also rapidly losing ground after hitting four-year highs.
Unlike the divided Fed, the ECB has no doubts about its next monetary policy action. Christine Lagarde said rates were left unchanged because there was not enough information available. However, the Governing Council debated at length the possibility of raising them. Bloomberg says that if the conflict in the Middle East persists and oil prices do not fall, the European Central Bank will raise rates as early as June.
The rise to 1.1740 was not solely due to divergent monetary policies. The single currency is also supported by a direct correlation with the , which set a record thanks to positive corporate earnings reports from tech giants. Oil has retreated from four-year highs, while Japan has been selling the dollar to retreat below 160, a government source told Bloomberg.
The day before, Finance Minister Satsuki Katayama stated that the authorities were willing to take decisive measures, while her deputy for international affairs, Atsushi Mimura, issued a final warning to speculators.
The weakness of the dollar allowed it to reach its highest level since February, above 1.3600. The Bank of England, by eight votes to one, kept interest rates at 3.75% and presented to the public several scenarios for future developments. Should there be an unfavorable turn of events, such as a rise to $130 per barrel, the Bank of England will have to tighten monetary policy by between 50 and 150 basis points.
The withdrawal of the US dollar allowed it to recover. However, the precious metal remains under pressure, having lost an important asset: the debasement trade. When central banks tighten monetary policy, the attractiveness of fiat currencies increases.
The FxPro Analyst Team
