Forex Today: DXY hits two-decade peaks near 104.00 as yen experiences post-dovish BoJ collapse

What you need to know on Friday 29 April:

Despite a surprise decline in inflation-adjusted economic activity in the US in Q1 2022 according to the latest GDP release, the US dollar advanced across the board on Thursday. The Dollar Index (DXY), a trade-weighted basket of major USD currency pairs, surpassed its 2017 highs to come within a whisker of hitting 104.00, its highest level since December 2002. This was primarily a result of a steep sell-off in the yen that launched USD/JPY to fresh multi-decade highs of at one point above 131.00. At current levels around 130.90, the pair looks on course to post a gain of about 1.9%, its largest one-day move since March 2020.

The catalyst for the latest leg lower in the yen, which saw all major G10/JPY pairs surge, not just USD/JPY, was Thursday’s dovish BoJ policy announcement. As expected, the bank doubled down on its intent to stick with its ultra-dovish policies of negative interest rates and yield curve control for the foreseeable future given continued pessimism about its ability to meet its long-term inflation remit. Some market commentators said this served as a “green light” for traders to continue selling the yen.

Elsewhere, most other major G10 currencies also continued to depreciate versus the rampant US dollar. NZD/USD dropped another 0.8% to fresh lows in July 2020 under 0.6500, EUR/USD dropped a further 0.5% and briefly dipped under 1.0500 for the first time since March 2017, GBP/USD dropped a further 0.6% to the mid-1.2400s and AUD/USD fell another 0.4% to probe 0.7100. Expectations for the BoE and RBA to both lift interest rates by 25 and 15 bps each next week, with the RBA motivated by spicey Australian Q1 inflation data out earlier this week, have done little to stem the recent slide.

Indeed, both of these hikes pale in comparison to the 50 bps move expected from the Fed at not only next week’s meeting, but also the next few. CAD was the only major G10 currency not to succumb to the US dollar’s advances on Thursday. USD/CAD reversed back from earlier session highs near 1.2900 back to trading a tad lower on the day near 1.2800 amid a surge in crude oil prices to their highest levels in more than a week.

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