The Dollar extended its rally as geopolitical tensions and a hawkish Fed buoyed demand for the safe-haven asset. In March, the Federal Reserve raised its benchmark interest rate by 0.25% to 0.50%, marking its first rates hike since 2018, and signalled an aggressive path ahead with further increases expected in the remaining six meetings in 2022. Unlike its counterpart, Yen nosedived following Bank of Japan’s move towards four days of unlimited emergency bond purchases as it continues to defend its low rates. JPY is currently the worst performing currency this year with around a 6% decline against the greenback.
Euro and Pound struggled for further upside against a stronger greenback amid the geopolitical tensions. In its March meeting, ECB surprised markets with the acceleration of its stimulus exit, although President Lagarde clarified that the ECB would be in no hurry to raise rates. However, rising inflation, exacerbated by rising commodity prices and geopolitical tensions, could put pressure on the back of the ECB to raise interest rates this year, with money markets pricing two quarter-point hikes from the ECB in 2022.
Aussie and Kiwi rallied higher, as countries who are net energy exporters and major producers of basic materials benefitted from rising commodity prices. Minutes of the latest policy meeting showed the RBA acknowledged the Ukraine war as a “major source of uncertainty,” but it would wait to see how factors affecting inflation evolved. Oil prices pared gains to reach about $100 per barrel as Biden announced the largest-ever strategic petroleum reserve release, which will supply 1 million barrels of oil per day for six months.