Yen spikes on suspected intervention; big week awaits the dollar

Yen slump triggers rally, but is it intervention? 

The yen sank to new 34-year lows against the US dollar in Asian trading on Monday, extending its slide from Friday when upbeat US economic data piled fresh pressure on the Japanese currency. A mildly hawkish Bank of Japan had already dragged the yen lower earlier in the day after policymakers provided no clues to the timing of the next rate hike at their April meeting even as bond purchases were scaled back further.

However, the speculative selling may have gone a step too far this time as the yen reversed course soon after breaching the 160 per dollar level, sparking talk of suspected intervention by Japanese authorities.

Although it’s possible that the violation of the critical 160 mark automatically set off some algos, with the moves exacerbated by thin liquidity due to today being a public holiday in Japan, the second spike hours later does raise the likelihood of intervention.

Japan’s top currency official Masato Kanda gave little away, saying “no comment for now”, but nevertheless, the dollar’s 5-yen plunge does suggest 160 yen is a red line for the government.

Dollar loses steam despite solid data 

The euro also fell sharply after hitting an all-time high of 171.42 yen, while the dollar edged lower across the board. The yen’s rebound may be weighing on broader dollar strength today, but it’s also likely that investors are cautious ahead of the Fed’s policy decision on Wednesday and the nonfarm payrolls report on Friday.

Those are just the highlights, with the ISM PMIs and a slew of other data also on the US agenda this week. There was a brief panic last week after first quarter GDP was a lot softer than anticipated while quarterly PCE inflation accelerated, stoking fears of stagflation. But under the hood, the GDP readings weren’t quite so bad and this was reinforced by Friday’s stronger-than-expected personal consumption figure for March.

Yet, there can be little doubt that inflation remains sticky as core PCE remained unchanged at 2.8% in March.

The Fed will probably stress that there’s no urgency to cut rates and whilst there’s a risk that Powell might open the door to a hike, markets have already priced out all but one rate cut so there’s little room for surprises. On the other hand, a lot is riding on the jobs numbers because another hot report could really start to shift the attention to further tightening.

Stocks buoyant, but oil and gold slip 

For now, though, Treasury yields are drifting lower for a second day, propping up Wall Street’s bounce back. The S&P 500 notched up its first weekly gain in three weeks following some strong earnings results from the likes of Microsoft and Alphabet. It’s going to be another busy day tomorrow, with Amazon leading the pack.

The focus ahead of that will be on Chinese PMIs and Eurozone flash GDP and CPI estimates, but until then, markets are in a slight risk-on mode, with easing geopolitical tensions also helping the mood.

Oil futures are in the red today and gold is marginally weaker too on renewed hopes of a ceasefire between Israel and Hamas that could stave off Israel’s planned offensive into Rafah.