The dollar’s dominance continued, with the yen dropping to a two-decade low. Here’s why American investors should be interested. 2022-04-28 09:21:00

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The dollar rose against major rivals on Thursday, hitting a two-decade high against the yen, as the Bank of Japan vowed to continue its pessimistic stance and pledged to buy unlimited bonds.

The yen extends its losses until the American morning
us dollar against japanese yen,
+ 1.96%

It fell 1.7% to 130.63 yen against the dollar, a level not seen in more than two decades. ICE . dollar index
DXY,
+ 0.72%
And
Which measures the US dollar against major rivals, it rose 0.7% to 103.69, the highest level since January 2017, according to FactSet. The index has gained 8% this year.

Also under pressure of the pound
GBPUSD,
-0.62%

The euro fell 0.8 percent to $1.2445, a level not seen since mid-2020
EURUSD,
-0.44%

It fell 0.5 percent to $1.0498, a level not seen since late 2016.

Sparking the dollar’s rally earlier in the session, the Bank of Japan pledged to defend a 0.25% yield on its 10-year fixed-rate Japanese government bonds.
TMBMKJP-10Y,
0.219%

By purchasing these bonds every business day, as long as the need arises.

Analysts say the move has just been added to the list of everything going in the direction of the dollar at the moment. That list includes shutdowns in China and concerns about global growth, Russia’s war in Ukraine and the prospect of sharp increases at the central bank, mainly from the Federal Reserve, said Matthew Ryan, senior market analyst at Iberi.

“These risks to growth, combined with a sharp rise in inflation globally, have led to one of the fiercest sell-offs in risk we have seen in some time, certainly since the start of the COVID-19 pandemic in March 2020,,” he said in a note.

The dollar’s march did not stop after the data that showed the US economy It shrank 1.4% in the first quarterThis is the first decline since the outbreak of the epidemic. This is even as weak growth may dampen expectations for a rate hike of more than 50 basis points at next week’s Federal Reserve meeting.

Dollar King, we have a problem

While a strong dollar can be a bonus for vacationing Americans, there are many reasons investors may not want to welcome this momentum.

“In practical terms, a strong dollar indicates that exports of US products will become more expensive for their overseas customers, thus lowering the profitability of US exporting companies,” said Peter Joseph, senior research analyst at Noteris, in comments via email.

“Also, a strong dollar could indicate that the Fed is draining cash from the market (tightening monetary policy), thereby reducing the supply of US dollars and thus enhancing its value while at the same time having fewer dollars to invest and move,” he added.

Finally, US stock markets can sometimes experience an inverse relationship with the dollar, “because it may also indicate a flight to safety for investors in US stock markets (that is, divestitures in stocks and toward US bonds),” Yousef.

While 2022 isn’t even halfway, the S&P 500
SPX,
+ 1.99%

It’s down nearly 12%, putting it on track for its worst annual performance since the Great Financial Crisis if those losses worsen or even persist.

Taking a look at how the S&P 500 is performing relative to the rest of the world when the dollar gains, Jefferies analysts said US stocks are likely to continue to outperform their peers. “Interestingly, despite the hack on several other occasions, DXY has been stuck in a fairly narrow range. [around] 7 years and it hasn’t reached 104 since it rose during the tech bubble.”

Across the Atlantic, the euro and sterling have been struggling as the biggest ground war since World War II rages in Ukraine, also encouraging inflows of dollars. common currency I was exposed to new pressures From this week’s news that Russia Cut off gas supplies to Poland and BulgariaWith greater concerns, more dependent countries such as Germany could face subsidy issues.

While the Federal Reserve is widely expected to raise interest rates at its first meeting in May, and continue to rise, many see the European Central Bank as unable to do the same. Economists predict that the fallout from the Russian war in Ukraine will deal a stronger blow to the European economy, which is struggling to break its dependence on Russian energy supplies, than that of the United States.

Germany’s annual inflation rate rose by 7.4% in April, the highest reading since the fall of 1981. A day after the German Economy Minister announced that he revised his growth forecast for 2022 to 2.2% from 3.6%, which added to the pressure on the euro, according to Iberian. Rayyan.

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