EUR/JPY is trading at fresh highs for 2022 and the highest since June 2021 as it tests 133.90 resistance as the euro pops in Asia towards 1.1050 vs the US dollar which has fallen as the Federal Reserve's Jerome Powell boost fades.
The dollar edged lower as a rise in equities markets help boost risk-on sentiment. The greenback had made its biggest one-day percentage gain since March 10 at the start of the week as the Fed opened the door for raising interest rates over several meetings.
Last week, the Fed raised interest rates by a quarter-point and announced six more hikes this year. However, Powell is signalling that the bank is prepared to raise rates by 50 basis points at its next policy meeting if necessary. Derivative traders are pricing in around 7.5 quarter-point rate hikes, effectively allowing for moreover one half-point raise.
Meanwhile, equities were getting a lift, in part, from bank shares on Fed rate hike expectations and that weighed on the safe-haven US dollar, enabling the euro and EUR/JPY to move higher. In Japan, the Nikkei 225 opened higher as a softer yen boosts exports and oil stocks climb with global crude prices.
However, markets are poised for extreme volatility until there is more clarity on Fed policy, inflation, and the Ukraine conflict, all of which has driven flows to the greenback and weighed on stocks in prior weeks. EUR/JPY would be expected to track the stock markets which have rallied firmly in March, so far.
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