The dollar rose past the psychological level of 130 yen today for the first time since 2002, after the Bank of Japan (BOJ) doubled-down on its super-low yield policy, while the euro briefly fell below another symbolic mark of US$1.05 (RM4.58).
There had been some market speculation the BOJ might step back a little given the pressure building across foreign exchange markets but it showed no hesitation.
“The BoJ gave the ‘all clear’ to continue selling the yen”, commented Lee Hardman, a currency analyst at MUFG Bank in London.
The sell-off triggered by the BoJ saw the dollar soar to as high as ¥131 (RM4.38), its highest level in 20 years.
The BOJ’s commitment to its zero-rate programme puts it at odds with the U.S. Federal Reserve, for which markets are pricing over 150 basis points of hikes in just three meetings.
The policy gap between the two central banks boosted the dollar index, which rose as high as 103.70, its highest in five years and just a whisker from levels not visited since 2002.
Other Asian currencies were also under pressure. Against China’s yuan traded offshore, the dollar reached as high as 6.6562 yuan, its highest since November 2020.
Meanwhile the euro slid and briefly touched a more than five-year low of US$1.0481 , bringing its losses for the month to 5 per cent, which would be its worst pummelling since early 2015.
Speculation is now growing the common currency could be on course towards parity with the dollar, a level not reached since 2002.
“It’s certainly looking like a realistic possibility”, Hardman argued, noting another key support at US$1.034, a level last reached in 2017.
The common currency could however see some support if the European Central Bank decided to hike rates in July, a possibility which president Christine Lagarde opened the door to yesterday.
Investors nevertheless speculate that the economic impact of a sudden disruption of Russian gas supplies to Europe may deter the central bank from tightening monetary policy aggressively.
“The FX options market assigns a 35 per cent probability to EUR/USD trading 1.00 at any time before year-end”, ING analysts wrote in a morning note.
One possible pot hole for the dollar will be data on U.S. gross domestic product due later today.