Dollar on track to post highest weekly close in two years

Following Wednesday’s retreat, the US Dollar Index (DXY) rose sharply on Thursday and touched its highest level since March 2020 at 100.76 boosted by rising US Treasury bond yields and safe-haven flows. With markets turning quiet on Easter Friday, the DXY consolidates its weekly gains. Ahead of the weekend, the US Federal Reserve will release the March Industrial Production data, which is unlikely to trigger a noteworthy market reaction.

The European Central Bank (ECB) announced on Thursday that it left its policy settings unchanged following the April meeting. In the press conference, ECB President Christine Lagarde reiterated that the QE will end in the third quarter and that the first rate hike would come sometime after asset purchases are concluded. Although Lagarde acknowledged that risks to the inflation outlook were tilted to the upside in the near term, her overall dovish tone triggered a heavy euro selloff.

With the ECB’s policy stance highlighting the widening policy divergence with the Fed, the benchmark 10-year US T-bond yield surged beyond 2.8% on Thursday. Moreover, the S&P 500 Index fell more than 1%, reflecting a negative shift in risk sentiment.

EUR/USD slumped to its weakest level since April 2020 at 1.0757 on Thursday before staging a rebound amid profit-taking in the late American session. The pair trades in a relatively tight range above 1.0800 early Friday.

GBP/USD seems to have gone into a consolidation phase above 1.3050 after having lost 50 pips on Thursday. The sharp decline witnessed in EUR/GBP suggests that the British pound has managed to capture some of the outflows from the shared currency.

Gold closed the sixth straight day in positive territory on Wednesday but rising US T-bond yields limited the yellow metal’s upside. XAU/USD registered small losses on Thursday to end the week in the green above $1,970.

USD/JPY touched its highest level in nearly 20 years above 126.50 early Friday. Japanese Prime Minister Fumio Kishida said on Friday that the Bank of Japan’s monetary policy is aimed at achieving its 2% inflation target, not at manipulating currency rates.

Bitcoin fell nearly on Thursday amid risk-aversion but seems to have found support near $40,000. Ethereum fell sharply on Thursday and erased the gains it recorded on Tuesday and Wednesday. ETH/USD was last seen testing $3,000.

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