The British pound soared to a fresh 10-month high against the dollar today. It added 0.4% to $1.2475, reaching its highest point since June 2022. The euro also rallied, hitting its highest point in two months. The common currency changed hands at $1.0938 at one point. It ended the session at $1.0921, up 0.17%.
On the other hand, the US dollar continued to trade in bearish territory. Investors expect the US Federal Reserve to end its rate hike cycle soon. Such sentiment weighs on the dollar. In addition, US and European government bond yields plunged sharply in March. Traders moved into safe-haven currencies on concerns about the struggling banking sector last month. Bank stocks have rallied a bit since then, but are still down.
Derek Halfpenny, MUFG’s head of global markets research, noted that rate changes haven’t really affected currency markets. But the dollar could fall further in the coming days. The US two-year yield finally settled at 3.9978%. It shaved a full percentage point, falling from its early March peak. Some traders bet the Federal Reserve would halt rate hikes due to turmoil in the banking sector. That also contributed to the drop in performance.
In Europe, the German two-year yield also plunged to 70 basis points after peaking in March. It stood at 2.687% at last. On Monday, the Institute for Supply Management (ISM) released a new survey. It showed manufacturing activity fell to the lowest level in almost three years last month. New orders continued to decline. Given this news, investors believe that the European Central Bank may have to offer more rate hikes.
How are the Australian dollar and Japanese yen doing?
The Australian dollar fell 0.6% to $0.67465 on Tuesday. The Reserve Bank of Australia decided to leave its cash rate unchanged at its last meeting. The rate currently stands at 3.6%. The RBA delivered 10 consecutive increases in the past few months. However, policymakers said they needed more time to assess the impact of the tightening policy to date, along with the economic outlook.
Matt Simpson, a senior market analyst at City Index, noted that the central bank appears confident that inflation has peaked in the country. Therefore, he chose not to add any more rate increases. However, the quarterly inflation report is due in a few weeks. If it shows that inflation is staying low, the RBA is likely to stop adjusting.
The dollar rose against the Japanese yen, trading at 132.84 on Tuesday. The US dollar index fell 0.1% to 101.92 against a basket of six major currencies.
What about emerging market currencies?
In Asia, emerging currencies and stocks fluctuated today. Traders were concerned that inflation could rise in some countries. The Organization of the Petroleum Exporting Countries cut oil production, adding to those concerns. In addition, there is talk of the possible global economic recession.
Despite the negative market sentiment, the Malaysian ringgit gained on Tuesday, adding 0.3%. The Indonesian rupiah also jumped 0.4%. These two were the ones that gained the most during this session, thanks to the rise in crude oil prices.
Paul Mackel, global head of FX research at HSBC, noted that the higher oil price supports the ringgit. However, so far, the coin is gaining modest amounts.
On Sunday, OPEC+ announced that it would cut production targets, cutting supply by 1.16 million barrels per day. This news sent the price of Brent crude higher. OCBC analysts noted that OPEC cuts could put pressure on oil prices in the coming weeks. And that could drive inflation. Therefore, market participants are concerned.
Other Asian currencies such as the Thai baht, Singapore dollar, Philippine peso and Chinese yuan changed hands unchanged or declined, some shedding as much as 0.3%.
However, the South Korean won rallied after trading in the red during the previous session. The coin rose as much as 0.6% on Tuesday. According to the Asian trade indicator, inflation cooled more than analysts had expected. As a result, investors are now betting that the central bank will end its rate-tightening cycle soon.
Also, among Asian stocks, the Malaysian, Indonesian and Philippine indices tumbled, trading 0.4% to 0.7% lower. Other shares in Singapore soared 1%, while those in South Korea added 0.3%.
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