USD breaks 160 against JPY, Euro collapses, GBP crashes: The dollar surges wildly. Who will be the next "breakout point" for the bears?

Huitong Finance APP News — This week, global foreign exchange market volatility has significantly intensified, with the US dollar performing strongly amid multiple favorable factors. Driven by safe-haven demand due to escalating Middle East tensions, coupled with a dramatic shift in market expectations regarding the US interest rate path, the dollar index recorded its largest monthly gain in nearly a year. Meanwhile, the yen has fallen below the 160 mark, triggering strong expectations for intervention from relevant overseas authorities. Global investor sentiment has swung wildly between faint hopes for diplomatic mediation and the real threat of military action, putting pressure on risk assets across the board.

Dollar Index: Dual Resonance of Safe-Haven Assets and Interest Rate Differential Advantage

Weekly Trend Review

The dollar index continued its strong rebound this week after hitting a low of 95.5660 in February, peaking at 100.5400 during the week, marking a new high in nearly six months. Despite a slight pullback mid-week, it quickly regained lost ground in the latter half of the week under safe-haven buying pressure. Although the MACD momentum bars have narrowed technically, prices are steadily operating above the middle band of the Bollinger Bands, demonstrating strong trend inertia.

Economic Data/Event Summary

The US consumer confidence index for March fell to a three-month low, indicating the erosion of domestic demand due to high inflation expectations and rising energy prices. However, the weakness in macro data did not hinder the strengthening of the dollar. The core driving force is the ongoing deterioration of the situation in the Middle East, with Iran’s counter-proposal to ceasefire suggestions and threats from the Revolutionary Guard regarding navigation in the Strait of Hormuz significantly stimulating demand for safe-haven dollars. Additionally, market expectations for interest rate cuts by the Federal Reserve this year have fundamentally shifted, with discussions even starting about the possibility of raising rates again.

Analyst/Institutional View Summary

Mainstream overseas institutions analyze that the correlation between the dollar and risk has reached a peak in recent years. Notable foreign media cited strategists’ views, indicating that weekend positions reflect investors’ fears of geopolitical risk volatility. At the same time, the shift in market pricing direction—from rate cut expectations to rate hike speculation—provides the dollar with medium- to long-term interest rate support, and this broad change in rate expectations is reshaping the pricing logic in the bond and currency markets.

Yen: Falling Below the Intervention Red Line, Energy Cost Pressure Intensifies

Weekly Trend Review

The USD/JPY pair exhibited extremely passive movement this week, with the exchange rate accelerating upward after breaking the previous high of 159.439, reaching a peak of 160.407, the first time it has crossed the 160 mark since July 2024. Despite a slight bearish divergence appearing in the MACD, indicating technical overbought conditions, the depreciation pressure on the yen has not been substantively alleviated in the face of strong dollar buying.

Economic Data/Event Summary

Japan’s high dependency on imported energy puts it at a disadvantage amid current fluctuations in oil prices. Although the Bank of Japan announced a new estimate for the neutral interest rate, signaling readiness to raise rates to counter inflation, the effectiveness of the policy signal has been completely offset by market risk-averse sentiment due to the unfavorable interest differential and external geopolitical pressures.

Analyst/Institutional View Summary

Mainstream overseas institutions are closely monitoring the Japanese authorities’ intervention actions. Analysts point out that the 160 mark is not only a psychological barrier but also the starting point of last year’s intervention. The current strength of the dollar appears sustainable; unless there is substantial easing in the Middle East situation, even short-term fluctuations caused by intervention are unlikely to reverse the macro background of the yen being sold off as a funding currency.

European Currencies: Stuck Between Economic Outlook and Tightening Policy Dual Pressure

Weekly Trend Review

The euro and pound performed weakly this week. The euro against the dollar broke below the 1.1619 middle band of the Bollinger Bands, establishing a medium-term downward trend; the pound declined for four consecutive trading days, recording a weekly drop of 0.9%, making it one of the worst-performing non-USD currencies. The MACD green bars continue to expand, indicating that bearish momentum is still being released.

Economic Data/Event Summary

Concerns about slowing economic growth in Europe due to the geopolitical situation’s impact on supply chains have overshadowed rate hike expectations. Although the Bank of England and the European Central Bank may face further tightening to address inflationary pressures, the market is more concerned that the combined effects of a high interest rate environment and an energy crisis will lead to an economic recession.

Analyst/Institutional View Summary

Overseas renowned institutions believe that European currencies are currently under the shadow of “stagflation” expectations. Analysts mention that market speculative expectations have fully shifted; although the terminal interest rate may rise, the relative attractiveness of the euro and pound compared to the dollar is weakening, and the logic of capital flowing back to North America remains unchanged.

Commodity Currencies: CAD’s Relative Resilience and AUD’s Risk Sensitivity

Weekly Trend Review

The USD/CAD pair reached a high of 1.3894 this week, closing with a solid bullish candle. The AUD/USD pair, on the other hand, has fallen to a two-month low.

Economic Data/Event Summary

Driven by rising oil prices due to the Middle East situation, the CAD, as an energy currency, has shown a certain degree of resilience, with relatively sufficient bullish momentum. In contrast, the AUD, as a typical risk currency, has suffered indiscriminate selling amid rising risk aversion, depreciating about 3% since the outbreak of the conflict.

Analyst/Institutional View Summary

Institutions generally believe that the divergence among commodity currencies reflects the differences between energy-exporting countries and risk-sensitive economies. As long as geopolitical premiums exist, the CAD’s downside space will be limited, while the AUD will need to wait for a recovery in global risk appetite.

In summary, the core driving logic of the global foreign exchange market this week has shifted from being purely driven by economic data to a dual driving force of geopolitical issues and policy expectations. The dollar maintains its lead among major currency pairs due to its safe-haven properties and the reassessment of interest rates. Next week, attention should be focused on substantive responses from Iran and the US decision regarding the deployment of additional ground forces. In an environment of extreme macro uncertainty, market sentiment will remain under high pressure. Technically, there are no signs of reversal in the bullish trend of dollar-denominated assets, while the pressure testing of European currencies and safe-haven assets will continue.

QA Module

1. Why has the traditionally safe-haven asset, the yen, performed so weakly amid rising risk aversion?

The weakness of the yen stems from a combination of dual pressures. First is the crushing logic of interest differentials; although the Bank of Japan is inclined to raise rates, the gap remains substantial compared to expectations of renewed rate hikes in the US, and the unwinding of interest differential trades is insufficient to combat arbitrage buying. Secondly, the yen is deeply affected by energy prices. The escalation of the Middle East situation has driven up oil prices, directly worsening Japan’s trade balance, turning it from a “safe-haven destination” into an “energy cost victim.”

2. Does the current strength of the dollar index have sustainability, and what is the core pillar supporting its long-term rise?

The core pillar lies in the “paradigm shift” of global interest rate expectations. Previously, the market widely believed that the rate hike cycle had ended, but the energy inflation risks caused by the current Middle East situation have led the market to reassess the Federal Reserve’s actions. When speculative expectations shift from “when will rates be cut” to “is another rate hike needed,” the bottom support for the dollar is significantly raised. As long as the global inflation anchor is unable to decline due to energy prices, the dollar’s relative strength will be hard to break.

3. What is the likelihood of Japanese authorities intervening in the foreign exchange market again at the 160 mark, and how effective will such intervention be?

The likelihood is very high. The 160 mark is seen as a “red line” by regulators, and breaking it would damage policy credibility. However, the effectiveness of the intervention is in question. Simply selling dollars cannot change the fundamental gap between the US and Japan. Historical experience shows that during periods of strong dollar trends, unilateral intervention usually only provides temporary pullback opportunities. Without substantive tightening of monetary policy, the yen’s depreciation trend may only be delayed, not reversed.

4. Why did the pound and euro experience declines this week that were significantly worse than other assets?

This reflects the market’s deep distrust in the resilience of the European economy. Europe faces not only a direct threat from disrupted energy supply chains but also indirect impacts from US trade-related policy rhetoric. Under the dual pressure of potentially prolonged high interest rates and stagnated growth, the risk premium of European currencies is being repriced. Moreover, compared to energy currencies like the CAD, European currencies lack endogenous momentum to hedge against high oil prices, making them the first to suffer in risk-averse markets.

5. What potential extreme risks in the foreign exchange market should investors be particularly vigilant about in the coming week?

The primary risk is a complete breakdown of diplomatic mediation in the Middle East, especially if large-scale ground conflicts occur, which could lead to liquidity-draining sell-offs in the yen and euro. The second is public statements from Federal Reserve officials; if it is confirmed that the option for rate hikes has returned to the table, the dollar index could break previous highs and initiate a new round of one-sided trends. Finally, attention should be paid to extreme overexposure in specific positions, and caution should be exercised regarding the rapid profit-taking risks that may arise from overcrowded long positions in the dollar.

(Reporter: Wang Zhiqiang HF013)

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