The dollar index fell 0.19%, as EUR/USD rebounded 0.27% after Friday and Monday’s 1.0802 lows retraced 61.8% of the rally from February’s 1.0695 low to March’s 1.0980 high, and as bund-Treasury yield spreads firmed after falling for most of the month.
Helping to catalyze the broader dollar pullback were a brief USD/JPY dip on the MoF upping the FX intervention threat and Chinese actions to support the yuan following Friday’s hefty 0.76 dive to its lowest since November. That as Chinese regulators again pushed reluctant banks to speed up approvals of new loans to cash-starved private property developers, according to a Reuters exclusive.
Sterling also rebounded after finding a foothold by the 38.2% Fibo of the September-March uptrend at 1.2565 by Friday’s 1.2572 low. Failure to close below the 200-DMA on Friday and it marking Monday’s 1.2589 low triggered a 0.3% rise to start the week.
Yields in Europe, and to a lesser extent in the U.S., were lifted by rising energy prices amid simmering geopolitical risks and as Russia ordered domestic output cuts to meet OPEC+ targets.
USD/JPY’s post-MoF FX warning dip held support near 151 due to rising Treasury-JGB yields spreads and doubts about whether yen intervention would produce anything more than a short-term USD/JPY drop that would be a buying opportunity. That is, unless the BoJ ends its quantitative easing that has 2- and 10-year JGB yields near 0.2% and 0.75% versus 2- and 10-year Treasury yields at 4.6% and 4.2% currently.
Month-end, and in the case of the yen, fiscal year-end flows, may skew trading this week, particularly ahead of U.S. core PCE due out on Friday. Limited liquidity due to major European money centers being closed for the Good Friday holiday could cause volatile trading in response to an off-forecast report.
If core PCE leans hawkish, with income and consumption holding up well, USD/JPY bulls could look beyond the MoF intervention threat and 32-year peaks by 152.
Plenty of Fed speakers this week, but it seems early to be rewriting the script from last week’s meeting before at least seeing core PCE.
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