Dollar tumbles, ECB hikes, and BoJ unlikely to tweak

The last top-tier event of the week will be the Bank of Japan’s decision during the Asian session. Later in the day, the University of Michigan will release its Consumer Sentiment report in the US. On Friday, market participants will continue to biggest the latest central bank meetings.

Here is what you need to know on Friday, June 16:

The US Dollar tumbled on Thursday and it looks vulnerable to further losses. The improvement in risk sentiment and falling US yields triggered a sharp decline. Wall Street indexes ended with gains of more than 1%. Crude oil prices rose more than 3%, and Gold and Silver rebounded sharply, erasing heavy losses. Economic data from the US came in mixed.

Following the European Central Bank’s (ECB) rate hike and Lagarde’s hawkish tone, the Euro strengthened, boosting the EUR/USD pair. Later in the day, the rally was driven by the slide of the US Dollar. The pair hit monthly highs at 1.0950 and closed near the top, keeping the momentum intact. Inflation data from the Eurozone (EZ) is due on Friday, but is not expected to be relevant as it is the final reading. Also EZ Q1 labors costs are due 

Analysts at Commerzbank:

ECB President Lagarde today surprisingly announced another rate hike for July. We are adjusting our forecast for July accordingly, but consider further rate hikes thereafter unlikely despite Lagarde’s hawkish statements. This is because the economy is likely to disappoint the ECB’s still optimistic expectations. Moreover, inflation will probably have fallen to around 4% by the meeting in mid-September. Moreover, a deposit rate of 3.75% in mid-September would be well above the neutral rate, which the ECB sees at only 2%.

The EUR/GBP peaked at 0.8595 but then pulled back to 0.8560. The GBP/USD posted its highest daily close in a year, slightly below 1.2800. Next week, the Bank of England will have its monetary policy meeting.

The USD/JPY peaked at 141.50, the highest level in seven months, and then pulled back to 140.25 amid falling US yields. The Bank of Japan will announce its decision on Friday and is expected to maintain its monetary policy stance. Any surprise will trigger sharp moves. The EUR/JPY jumped to the highest level since 2008 above 153.00, reflecting the divergence between the Bank of Japan and the ECB, alongside risk appetite.

The Australian Dollar outperformed on Thursday, boosted by the employment data from Australia and also by risk appetite and speculation about Chinese economic stimulus. AUD/USD rose for the sixth consecutive day, moving towards 0.6900.

The Kiwi lagged and was affected by the New Zealand GDP report. NZD/USD rose, reaching a fresh monthly high at 0.6241. AUD/NZD gained almost a hundred pips, posting the highest close since November at 1.1035.