USD Benefits From Global Turmoil

The market mood is sour, helping the American dollar to end the day with gains against most major rivals.

The initial catalyst came from the Bank of Japan. The central bank announced it would be buying an unlimited amount of 10-year JGBs at 0.25% in an attempt to defend the yield cap.

This is the second time the central bank has intervened in the market this year. The decision sent the JPY into a sell-off spiral that helped the greenback to advance further across the FX board. USD/JPY peaked at 125.05, to later stabilize around 123.60.

The yield on the 10-year Treasury note peaked at a fresh multi-year high of 2.557%, later retreating towards 2.46% and triggering a dollar’s bearish correction.

On the war front, Russian lawmaker Ivan Abramov on Monday said a refusal by the G7 to pay for Russian gas in roubles would lead to an unequivocal halt in supplies. German Finance Minister Christian Lindner responded that his country is ready if Moscow retaliates against the G-7 and that companies must resist Russia’s demands for gas payments in ruble.

Wall Street spent the day in the red, bouncing ahead of the close on news that Russia is ready to make some concessions, no longer demanding that Ukraine be “denazified” and letting the country join the EU if it remains neutral.

Also, China announced more coronavirus-related lockdowns, this time hitting Shanghai. The news further exacerbated concerns related to inflation and supply chain disruptions.

Bank of England Governor Andrew Bailey warned about swings in commodity markets posing a risk to financial stability. He also noted that there are risks on both sides to inflation. GBPUSD fell to 1.3065 and finished the day just below 1.3100. The EUR/USD pair reached a fresh 2-week low of 1.0944, meeting sellers on approaches to the 1.1000 figure.

Commodity-linked currencies ended the day with modest losses. AUD/USD trades just ahead of the 0.7500 level, while the USD/CAD pair is up at 1.2530. Gold came under pressure and finished the day at $1,926 a troy ounce, while crude oil prices also edged lower, with WTI now trading at around $104.60 a barrel.

The macroeconomic calendar, with the focus shifting to US employment data to be released by the end of the week.