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

APP News from Huitong Finance and Business—This week, volatility in the global foreign exchange market has significantly intensified, and the U.S. dollar has been strong amid a complex mix of multiple favorable factors. Driven by safe-haven demand sparked by an escalation in the Middle East situation, along with a sharp reversal in market expectations for the U.S. interest-rate path, the U.S. Dollar Index recorded its largest single-month gain in nearly a year. Meanwhile, the Japanese yen has broken below the 160 level, triggering strong market expectations for intervention by relevant overseas authorities. Global investors’ sentiment has been swinging violently between a faint hope for diplomatic mediation and the real threat of an expansion of military actions, leaving risk assets under broad pressure.

U.S. Dollar Index: Double resonance between safe-haven assets and the interest-rate spread advantage

Review of this week’s trend

This week, the U.S. Dollar Index continued its strong rebound momentum after hitting the 95.5660 low point in February. During the week it climbed as high as 100.5400, reaching a new high in nearly six months. Although there was a modest intraday spike followed by a pullback around midweek, in the second half of the week it quickly regained lost ground after safe-haven buying stepped in. Even though the MACD momentum bars narrowed somewhat on the technical front, price action remained稳健 in motion above the middle band of the Bollinger Bands, demonstrating very strong trend inertia.

Summary of economic data/events

The U.S. March consumer confidence index fell to a three-month low, indicating that expectations for high inflation and rising energy prices are eroding domestic demand. However, weak macro data has not prevented the U.S. dollar from strengthening. The core driving force is the continuing deterioration of the Middle East situation: Iran’s counterproposal to a ceasefire plan, and the Islamic Revolutionary Guard Corps’ threat to navigation through the Strait of Hormuz, which greatly stimulated demand for safe-haven dollars. In addition, market expectations for Fed rate cuts this year have undergone a fundamental reversal, with even discussions beginning about the possibility of restarting rate hikes.

Analyst/institution viewpoints—summary

Overseas mainstream institutions believe that the correlation between the U.S. dollar and risk has reached its highest level in recent years. Well-known foreign media cited strategists’ views indicating that weekend positioning tendencies reflect investors’ fear of volatility in geopolitical risk. At the same time, the shift in how the market is pricing—moving from rate-cut expectations to a rate-hike game—provides the dollar with medium- to long-term support from interest rates. This broad shift in interest-rate expectations is actively reshaping the pricing logic of both the bond and FX markets.

Japanese yen: Breaks below the intervention red line, and pressure from energy costs jumps sharply

Review of this week’s trend

The USD/JPY exchange rate moved this week in an extremely passive manner. After breaking above the prior high of 159.439, the price accelerated upward, topping out at 160.407—its first break above the 160 level since July 2024. Although the MACD shows a slight bearish divergence at the top, hinting at technical overbought conditions, in the face of strong dollar-buying pressure, the yen’s depreciation pressure has not been materially alleviated.

Summary of economic data/events

Japan’s high dependence on imported energy puts it at a disadvantage amid current fluctuations in crude oil prices. Although the Bank of Japan released new neutral interest-rate forecasts, signaling readiness to raise rates to offset inflation, limited by weak interest-rate spreads and external geopolitical pressure, the boost from policy signals has been fully offset by market safe-haven sentiment.

Analyst/institution viewpoints—summary

Mainstream overseas institutions are generally focused on Japan’s official intervention actions. Analysts point out that the 160 level is not only a psychological line of defense, but also the starting point of last year’s intervention. With the current strength of the dollar likely to persist, if the Middle East situation does not ease materially, even if intervention produces short-term volatility, it will still be difficult to change the macro backdrop in which the yen—as a funding currency—is being sold off.

European-currency bloc: squeezed by the twin pressures of economic outlook and tighter policy

Review of this week’s trend

The euro and the pound sterling were weak this week. The euro fell below the middle band of the Bollinger Bands at 1.1619, confirming a medium-term downward trend; the pound sterling continued to slide for four straight trading days, recording a weekly drop of 0.9%, making it one of the worst performers among non-U.S. currencies. The MACD green bars have continued to expand, showing that short-side momentum is still in the process of being released.

Summary of economic data/events

Because geopolitical developments have disrupted supply chains, concerns about slower European economic growth have outweighed expectations of rate hikes. Although the Bank of England and the ECB may face further tightening to deal with inflation pressure, the market is more worried that the combined effect of a high-interest-rate environment and the energy crisis will lead to an economic downturn.

Analyst/institution viewpoints—summary

Well-known overseas institutions believe that European-currency bloc assets are currently operating under the shadow of “stagflation” expectations. Analysts note that market speculative expectations have shifted across the board. Although the terminal value of interest rates could move higher, the relative attractiveness of the euro and the pound sterling versus the U.S. dollar is weakening, and the logic of capital returning to North America has not been shaken.

Commodity currencies: Canadian dollar’s relative resilience and Australia’s risk sensitivity

Review of this week’s trend

The USD/CAD pair reached a weekly high of 1.3894, and the close showed a bullish candlestick. Meanwhile, AUD/USD fell to a two-month low.

Summary of economic data/events

Because oil prices rose on the back of the Middle East situation, as an energy currency, the Canadian dollar demonstrated a degree of staying power, with long-side momentum relatively sufficient. By contrast, the Australian dollar, as a typical risk currency, suffered indiscriminate selling when safe-haven sentiment heated up, losing about 3% since the outbreak of the conflict.

Analyst/institution viewpoints—summary

Institutions generally believe that the divergence in commodity currencies reflects differences between energy-exporting countries and risk-sensitive economies. As long as there is a geopolitical risk premium, the downside space for the Canadian dollar will be limited, while the Australian dollar needs to wait for a recovery in global risk appetite.

Overall, this week’s core driving logic in global FX markets has shifted from being driven solely by economic data to being driven by a dual force of geopolitics and policy expectations. The dollar, leveraging its safe-haven characteristics and expectations of being repriced on interest rates, has maintained leadership across major currency pairs. Next week, key focus should be on substantive responses from Iran and on the U.S. decision regarding deploying additional ground troops. With macro conditions remaining highly unclear, market sentiment is likely to stay under high pressure. From a technical perspective, there is still no sign of a reversal in the long-side trend of dollar-linked assets, and pressure tests on European-currency bloc and safe-haven assets will continue.

QA Module

1． Why, in the backdrop of rising safe-haven sentiment, does the traditional safe-haven asset— the Japanese yen—perform so weakly?

The yen’s weakness comes from the overlap of two pressures. First is the crushing effect of the interest-rate spread logic. Although the Bank of Japan has a tendency toward rate hikes, compared with expectations that the U.S. might restart rate hikes, the interest-rate spread remains huge, and the degree of covering/closing carry-trade positions is not enough to counter the demand from arbitrage-buying. Second, the yen is deeply affected by energy prices. Escalation in the Middle East has pushed up oil prices, directly worsening Japan’s trade balance, causing it to shift from a “safe-haven destination” to an “energy-cost victim.”

2． Does the dollar index strength in this round have sustainability, and what is the core pillar supporting its long-term upside?

The core pillar lies in a “paradigm shift” in global interest-rate expectations. Previously, the market widely believed that the rate-hiking cycle had ended, but the energy-inflation risks caused by the current Middle East situation have led the market to reassess the Fed’s actions. When speculative expectations shift from “when to cut rates” to “whether another rate hike is needed,” the dollar’s bottom support is lifted significantly. As long as the global inflation core cannot fall due to being dragged down by energy prices, the dollar’s relative strength is difficult to break.

3． How likely is it that Japan’s authorities will intervene in the FX market again at the 160 level, and what would be the effect?

Possibility is extremely high. The 160 level is regarded as the “red line” for regulators; breaking it would damage policy credibility. However, the effectiveness of intervention is uncertain. Simply selling dollars cannot change the gap in fundamentals between the U.S. and Japan. Historical experience shows that during phases when the dollar is strengthening in a trend, one-sided intervention typically can only provide temporary opportunities for pullbacks. If a substantive tightening of monetary policy cannot be achieved in tandem, the yen’s depreciation trend may only be delayed rather than reversed.

4． Why have the declines in the pound sterling and the euro this week exceeded those of other assets?

This reflects the market’s deep lack of trust in Europe’s economic resilience. Europe not only faces the direct threat of disrupted energy supply chains, but also suffers an indirect shock from U.S. trade-related policy rhetoric. Under the double pressure of potentially higher-for-longer rates and growth stagnation, the risk premium of European-currency bloc assets is being repriced. In addition, compared with energy currencies like the Canadian dollar, European currencies lack endogenous motivation to hedge against high oil prices; therefore, in risk-off conditions, they are hit first.

5． What potential extreme FX risks should investors watch most closely in the coming week?

The primary risk is a complete breakdown of Middle East diplomatic mediation. Especially if large-scale ground conflict occurs, the yen and the euro could experience sell-offs driven by liquidity exhaustion. Second is public statements by Fed officials—if official sources confirm that rate-hike options have returned to the table, the U.S. Dollar Index will break above prior highs and start a new round of one-way trading. Finally, attention should be paid to extreme positioning becoming overheated in certain specific instruments, and the risk of a flash collapse triggered by rapid profit-taking after dollar longs become overly crowded should be guarded against.

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责任编辑：郭建