FOREIGN EXCHANGE UPDATE

The U.S. Dollar reached a five-year high against the Yen on Monday as traders prepared for the Federal Reserve to start increasing rates, whilst forecasting the Bank of Japan to stay dovish.?The greenback hit 117.88 Yen in Asian trade, the strongest since January 2017, to kick off a week of central bank meetings in the U.S., UK and Japan.

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"The Ukraine conflict is not expected to prevent the BoE and Fed from raising rates in the week ahead while the BOJ stands pat," according to MUFG Bank analysts. "Unless there is a significant de-escalation in the Ukraine conflict, the Dollar should remain stronger." Around six or seven rate rises of 25 basis points each are forecast in the U.S. in 2022, Reuters reports, whilst six are predicted in the UK. "

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GBP/USD faces the FOMC and Bank of England (BoE) within 24 hours. Both central banks are expected to increase their policy interest rate by 25bp. The market reaction will depend in large part on their post-meeting statements and the FOMC’s press conference," stated Joseph Capurso, head of international economics at Commonwealth Bank of Australia, who cautioned that the Pound could fall to 1.2894 this week. However, in contrast, Japan’s central bank is set to maintain a dovish stance at this week’s meeting as policymakers attempt to bolster the country’s shaky economic recovery from the Covid crisis.?

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Elsewhere, the Australian Dollar was last down by 0.5% to stand at $0.7256. Yet the GBP/AUD exchange rate firmed at the beginning of the week as low risk appetite weighed on the Aussie. At the time of writing GBP/AUD was trading at A$1.7887, an increase of 0.6% from the open. However, the New Zealand Dollar fell 0.2% to $0.6791.

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The Euro stood at $1.0915, whilst the Pound dropped 0.2% to a 16-month low of $1.3013. "With the UK more exposed to the Russian supply shock than the U.S., we think the risks lies with disappointment by the BoE and a weaker Sterling down to $1.2894," stated Commonwealth Bank of Australia analysts. In addition, Scotiabank strategist Juan Manuel Herrera commented: “We see the EUR weakening to the 1.06 level in the coming weeks, while a ramp up in Russian aggression and signs of depressed growth in the bloc (possibly a recession ahead) could see the EUR aim for the ~1.0350 low of early-2017.”