US Dollar (DXY) on The Back Foot, Bruised by the ECB and BoJ

US Dollar Price and Chart Analysis

• ECB hikes by 75bps with more front-loading on the menu.
• BoJ jawboning has given the Yen a boost.

The US dollar basket is nearing a 10-day low in early trade as a raft of major currencies start to claw back recent losses against the greenback. The move lower in the US dollar basket has been fueled by Thursday’s 75 basis point rate hike, and hawkish words, by the European Central Bank (ECB), and verbal intervention by the Bank of Japan over the lowly level of the Yen against the US dollar.

Thursday’s ECB meeting saw the central bank hike all three official rates by 75 basis points, the largest increase in the single currency’s history. While the market had been looking to the ECB to ramp up interest rates, subsequent commentary from ECB President Christine Lagarde left the door open for another 75bp hike at the October 27 meeting as the central bank looks to further front-load rate increases to stamp down on uncomfortably high inflation. With the Euro making up nearly 58% of the US dollar basket, the pullback in EUR/USD is weighing on the greenback.

BoJ and Prime Minister Discuss FX as ‘Evening Star’ Appears on USD/JPY

USD/JPY has been a one-way trade for the last few months with the pair rallying to levels last seen over two decades ago, as the Bank of Japan battles to cap interest rates by buying huge amounts of Japanese government bonds (JGBs).

Japanese Yen (JPY) Collapses Across the Board as the BoJ Ramps up Bond Purchases

Verbal intervention by the Japanese officials ramped up yesterday with Finance Minister Shunichi Suzuki warning about the ‘one-sided’ moves in USD/JPY, adding that they will take ‘necessary action’ to stem further weakness. This shot across speculators’ bows sent USD/JPY tumbling by around two big figures down to 142, although it remains to be seen if official words can prevent the pair from moving higher again.

Next week the US data calendar is relatively busy with Tuesday’s inflation report the pick of the bunch. Yesterday US Treasury Secretary said that lower gas prices may push inflation lower in August. Noting that gas prices had fallen for 80 days in a row, and that headline inflation turned negative in July, Ms. Yellen said, ‘I think there will be some further impetus in the next report (August) as gas prices have continued to fall’.

For all market moving data releases and economic events see the real-time DailyFX Calendar.

Looking at the latest DXY chart, the break below the prior high at 109.02 has turned the short-term outlook for the greenback mildly bearish, but the longer-term view is for the US dollar to climb further. A support zone between 107 and 107.20 may be difficult to break convincingly, and if this is the case the greenback should then start to climb again and look to re-test the recent high at 110.52.

US Dollar (DXY) Daily Price Chart – September 9, 2022

What is your view on the US Dollar – bullish or bearish?? You can let us know via the form at the end of this piece or you can contact the author via Twitter @nickcawley1.