US Dollar Drops Due to Good News of Ukraine and Japan

EUR/USD jumped more than 1 percent above the 1.1100 threshold, while USD/JPY printed losses of more than 1 percent below the 123.00 threshold.

The US dollar index (DXY) slumped nearly 1 percent in early New York trading today (29/March), following a series of recent news that triggered significant gains in the euro and yen exchange rates. When the news was written, DXY was circulating in the 93.30s range. EUR/USD jumped more than 1 percent above the 1.1100 threshold, while USD/JPY printed losses of more than 1 percent below the 123.00 threshold.

US Dollar Drops Due to Good News of Ukraine and Japan

DXY Daily chart via TradingView

Russia Withdraws From Kyiv, Ukraine Is Ready To Be A Neutral Country

Russian-Ukrainian negotiations in Istanbul, Turkey, have made significant progress. Alexander Fomin, Deputy Defense Minister of Russia, said that Moscow would reduce its military operations "drastically" around Kyiv and Chernihiv. A US official confirmed this with monitoring results showing some movement of Russian troops away from Kyiv today.

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Ukraine also put forward a proposal that accommodated some of Russia's demands. The proposal includes Ukraine's willingness to assume neutral state status, as well as abandoning its aspirations to join NATO. On the other hand, Ukraine demands that it remains allowed to join the European Union and asks for international security guarantees so that its territory is not attacked again.

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The euro immediately rebounded strongly following this series of news. It's not just EUR/USD that's skyrocketing, it's EUR/GBP and EUR/CHF as well. The euro is now holding a week high against the US dollar and the Swiss franc. Meanwhile, EUR/GBP is in its highest range since February 2022 as the pound sterling was hit by the dovish statement by the Governor of the Bank of England.

Japanese Government Concerned About Weakening Yen

Japanese Finance Minister Shunichi Suzuki said the government would monitor exchange rate movements to prevent the yen from weakening excessively and hurting the economy. The statement was then followed by news about a meeting between two top Japanese and US officials in order to discuss exchange rates.

"We discussed financial market developments, including dollar-yen movements," said Masato Kanda, Undersecretary of the Treasury of Japan for Foreign Affairs, after his meeting with Andy Baukol, Undersecretary for Foreign Affairs at the US Treasury, "We underlined the importance of maintaining the G7 and G20 commitments on exchange rates."

Kanda and Suzuki did not elaborate on whether the monitoring of the exchange rate would be followed up with currency intervention or not. However, a number of market players see it as a signal to take short-term profits. On the other hand, analysts believe the next USD/JPY trend will still be bullish and even has the potential to rise to around 125.00.

"While the comments from Japanese officials are unlikely to reverse the yen's weaker trend on their own, they should at least help to slow the current yen sell-off," said Lee Hardman of MUFG, in a note to clients cited by Reuters.
"The divergence between US and Japanese monetary policies will continue to weigh on the yen, which we expect to stabilize around 125 versus the dollar and possibly even surpass that level," said Roberto Mialich of Unicredit. "Our view on the greenback remains positive due to the Federal Reserve's hawkish stance."