The FX Trader: BoJ leads seven incoming central bank meetings

Muted volatility is the uninspiring watchword of the day across much of FX as the US dollar remains a barometer of cross-market risk sentiment. The US dollar peaked at the Friday close and around the Monday opening before generally weakening until early today as risk sentiment stabilized, even without notably positive news coming from the war front in Iran or sense the flows of oil and gas are set to normalize in any way through the Hormuz Strait.

The USD began firming from an early Wednesday low as crude oil prices are misbehaving badly once again later in the day, with the Brent crude oil benchmark rising sharply to new highs and above the highest daily close of the cycle (surprisingly 103.42 versus 108+ as of this writing) as Israel is bombing Iran’s energy infrastructure and Iran counters with threats to attack regional energy production infrastructure “previously thought safe”.

The USD is dually a safe haven from higher oil prices, enjoying both 1) the usual liquidity angle and the fact that the market was profoundly negative on the US dollar coming into this crisis (which hasn’t been priced as a crisis just yet, but more like a “cause of concern” and 2) because the US enjoys better supplied energy markets and vastly lower prices as it is closer to self-sufficiency in oil if regional imports are included in the mix, and total self sufficiency in gas.

Another currency enjoying a tailwind from the recent rise in oil and gas prices and with a turbo-charged rally yesterday is the Norwegian krone. EURNOK dove below 11.02 today, already yesterday clearing all the key range lows since early 2023 and brining the psychologically important 11.00 into view. Plenty more potential for an even lower EURNOK as long as energy deliveries to Europe are in doubt. A currency not providing any safe haven cachet

Central bank cavalcade today and tomorrow.
The BoJ is the most interesting for potential signals. For most currencies, the coming central bank meetings are far less important than the additional volatility risks from any dramatic news from the war in Iran – or even just the market deciding that it is being too complacent – something we have argued in recent days. But a quick rundown of each of the central banks meeting today and tomorrow.

Bank of Canada 1345 GMT Wednesday
Bottom line: not looking for surprises. The BoC was out just before we go live with this report. No surprise to see a muted reaction as the BoC prefers to “look through” the uncertainty from higher oil prices and the impact on inflation for now, concentrating on risks to lower growth. The market has priced a possible BoC hike for later this year, but the Canadian economic data is surprising very negatively lately and inflation was heading lower. The economy will weigh greater for the BoC, but the rate is already low.

FOMC Meeting - 1800 GMT Wednesday
Bottom line: market not pricing surprises and unlikely to get firm takeaways from a lame duck Fed Chair and diverse FOMC views in the forecasts. The outlook is clouded by the recent mixed US data,some of which has been positive, and the jump in energy prices with is growth negative/inflation positive, an ugly mix for the dual-mandate Fed. , the market has quickly reduced the number of expected Fed rate cuts for the balance of this year from more than two to slightly less than one since the war in Iran began. We’re al waiting for the new Warsh-led Fed and how it will enable Bessent’s agenda more than this or the next FOMC meeting.

• Bank of Japan – Thursday somewhere before or after 0300 GMT
  Bottom line: The market needs some guidance and Ueda needs to be careful about his dovish tendencies with USDJPY up against a level (160.00) that Japan’s finance minister doesn’t like after repeated verbal intervention ahead of that level this week. Also, Takaichi is set to meet with Trump tomorrow – new cycle highs wouldn’t be a good look, PR-wise. But what if oil prices are spiking well north of 110/barrel before then? Japan is one of the most reliant large economies to crude oil from the Hormuz Strait. Generally looking for the BoJ avoid pressure on JPY above all else which has to mean guiding for another rate hike soon to firm market expectations that they remain on track for policy tightening. But they have disappointed so often in recent history….
• Swiss National Bank (SNB) – Thursday 0830 GMT
  Bottom line: SNB won’t need to deliver a super-strong message with EURCHF well above 0.9000 and with gold prices cratering as its safe haven bid hasn’t been there this week after the Monday spike lower. But expect the bank to deliver the message that its preferred tool is FX intervention in the event CHF does begin strengthening again.
• Sweden Riksbank – Thursday 0830 GMT
  Bottom line: Riksbank has no choice to but wax a bit hawkish needing to do so to consider currency risks from weaker FX if an oil crisis lies ahead – might wax a bit more hawkish to counter risks from poor liquidity as its policy rate looks very low relative to global peers at 1.75%.
• Bank of England – Thursday 1200 GMT
  Bottom line: The market has fairly removed all the former forward cut anticipation, helping to revive sterling. The Bank of England might look to buy time by wishy washy language fretting risks to inflation and growth but hoping it won’t have to guide for now, hoping clarity emerges before the next meeting. If we get proper risk off from war in Iran, sterling might come under pressure. No rate move is priced in for next several meetings.
• ECB – Thursday 1315 GMT
  Bottom line: The ECB likely to reflexively talk up inflation risks – but will still want to buy time. The market is penciling in an ECB rate hike with low odds for the late April meeting, higher odds for the June meeting. More hawkish ECB is in the price, so firmer guidance would be needed to add to hike anticipation.

Chart focus: USDJPY
The natural direction of pressure for USDJPY is to the upside as the USD is the dual safe haven on its invulnerability to oil supply disruptions and normal safe haven status, while Japan is over a barrel as long as crude oil prices streak higher, as it is one of the most dependent economies on oil supplies through the Hormuz Strait – and the Bank of Japan tends to underplay inflation risks relative to global peers. Meanwhile, one can’t make up the fact that Japan’s Ministry of Finance continues to intervene just ahead of 160.00 and PM Takaichi is to meet US President Trump on Thursday. Choppy, choppy price action expected if 160.00 is tested on market getting spooked by flows and intervention rumors.