The U.S. dollar touched its highest since 2002 on Thursday as the Bank of Japan strengthened its commitment to ultra-low interest rates, while U.S. and European shares rose with strong earnings reports offsetting gloomy U.S. economic data.
The yen dropped to a 20-year low and breached 131 per dollar, levels that had previously been highlighted as intervention territory, after the Bank of Japan vowed to buy unlimited amounts of 10-year bonds daily to defend its yield target.
The fall of the Japanese currency sent the U.S. dollar to a fresh high, weakened emerging market currencies and pushed borrowing costs for U.S. dollars in currency derivatives markets sharply higher.
The stronger dollar kept gold prices under pressure. Oil prices rose by $1 a barrel in choppy trading as investors weighed tightening Russian supplies and the prospect of slowing demand in China.
The Dow Jones Industrial Average rose 137.16 points, or 0.41%, to 33,439.09, the S&P 500 gained 35.28 points, or 0.84%, to 4,219.24 and the Nasdaq Composite added 132.73 points, or 1.06%, to 12,621.66 by 11:17 a.m. EST (1517 GMT).
Technology stocks gained on strong earnings, led by a rally in Facebook parent Meta Platforms.
Those gains supported Wall Street even after the U.S. Commerce Department said in its advance GDP estimate that gross domestic product fell at a 1.4% annualized rate last quarter.
The MSCI world equity index rose 4.91 points or 0.75%, to 658.81.
European stocks gained on solid corporate earnings. The pan-European STOXX 600 rose 0.39%. Indexes in Frankfurt and Paris both rose.
London-listed bank Standard Chartered jumped 13% after upbeat quarterly earnings. Its Hong Kong-listed shares had earlier gained more than 10%.
"Markets were quite fearful at the start of the earnings season but Meta's earnings last night seems to have calmed sentiment," said Kaspar Hense, senior portfolio manager at Bluebay Asset Management in London. "It looks like we have turned a corner for the outlook for U.S. stocks and that should provide some relief to investors watching the dollar's rise."
Earlier, MSCI's broadest index of Asia-Pacific shares outside Japan rose 0.93%.
The BoJ's move was in stark contrast with investors' conviction that U.S. interest rates are about to start going up quickly and it jolted the dollar higher.
"The message from the monetary policy statement this morning is that the Bank of Japan refuses to budge, sticking with its unlimited bond buying plan to defend the 0.25% 10-year yield target," said Arne Petimezas, senior analyst at AFS Group.
The euro hit a five-year low against the dollar of $1.04695 before paring losses. It was still on track for its worst monthly performance since January 2015.
The euro's drop to its lowest since 2017 is rekindling the possibility it will reach parity against the dollar for the first time in two decades, as fears of a euro zone recession encourage investors to pile on the bearish bets.
The weaker yen and euro pushed the dollar index as high as 103.930, its highest level since December 2002.
Japan's Nikkei rose 1.75%, its best day in two weeks, as investors cheered the weaker currency that helps Japanese exporters. Japanese government bonds had their best rally in a month.
U.S. government bonds rose after signs of strength in the U.S. job market outweighed an expected decline in economic growth in the first quarter.
Investors expect that U.S. rates are rising and that next week's Federal Reserve meeting will bring the first of several consecutive 50-basis-point hikes.
Oil prices were up, with Brent crude futures gaining 0.85% and U.S. crude up by 1.44%.
Spot gold prices edged higher after touching their lowest level in two months on the dollar's rally.