The euro and the pound fell while the US dollar rose

The euro tumbled on Friday along with the pound sterling. The recovery of the dollar weighed on the currencies. Market sentiment was weak due to fears about the possible banking crisis. While some economic data showed strong numbers, that wasn’t enough to lift investor spirits. As a result, they bought the safe-haven dollar instead of its riskier peers.

In Europe, bank stocks fell significantly, ending the session in the red. Several major banks, including Deutsche Bank and UBS Group, suffered as traders feared further complications. The banking sector has yet to fully recover from the 2008 financial crisis, and new problems are hitting it hard. Although various officials tried to reassure markets that the eurozone would not have to endure another crisis, sentiment remained cautious.

On Friday, Purchasing Managers’ Index (PMI) data came out strong. Despite that, the common currency continued to trade in bearish territory. Overall, European banks cut more than 5% during this session.

The euro fell more than 1% today. It changed hands to $1.0714. However, the coin rallied a bit later, ending the session down 0.9% at $1.0735. Meanwhile, the pound fell 0.6%, trading at $1.2214. According to new data, the British economy could grow steadily in the first quarter. But this news could not sustain the fall of the pound sterling.

What do the analysts say?

Jane Foley, Rabobank London’s director of currency strategy, said the data turned out to be much better than analysts had forecast. However, the markets are in a risk averse mood. That means almost all currencies fall against the safe-haven dollar.

On Thursday, the British pound soared to a seven-week high of $1.2341. The coin gained a lot in volatile trading. The Bank of England raised its interest rates by 25bp, supporting the pound’s rally. The BOE made such a decision due to rising inflation, but its officials also stated that a price surge should be short-lived. If inflation really falls, the bank will likely stop adjusting.

The sterling rally ended today on fresh concerns over the banking sector. The unexpected bankruptcies of two regional US lenders caused much confusion, and UBS’s acquisition of Swiss bank Credit Suisse in a emergency sale only deepened investor fears.

However, the dollar was not the only gain today. Other safe havens, such as the Japanese yen and gold, also soared. Christopher Wong, OCBC’s currency strategist, noted that a bout of risk aversion lifted the dollar and yen while pushing other currencies lower. He thinks that the next few days could show some fluctuations in the market, especially until sentiment remains fragile.

On Friday, the Japanese yen rose 0.7%, changing hands at 129.95 per USD. Earlier in the session, the coin hit a seven-week high of 129.64. In addition, a new report showed that in Japan, core consumer inflation eased significantly last month. But inflation is still above the BOJ’s 2% target. The Bank of Japan has avoided raising interest rates so far, saying it could push the country’s economy into recession.

How is the US dollar trading now?

On Friday, the dollar index rose 0.6% to 103.22 against the basket of six major currencies. The Federal Reserve raised its interest rates by 25 basis points at its meeting on Wednesday. As investors expected such a rise, this news did not make much of a difference in the market.

The bank decided to avoid a further increase due to uncertainty about the banking sector. However, Fed Chairman Jerome Powell commented that officials could make another hike in the near future if necessary. On Thursday, US Treasury Secretary Janet Yellen also promised citizens that she would do everything possible to ensure their bank deposits remained safe.

In Asia, emerging market stocks were muted on Friday. However, the MSCI currency index declined 0.5%, plummeting after three straight days of gains. Tensions between the US and China soured sentiment. Consequently, shares in China and Hong Kong fell 0.6% each. On Thursday, US lawmakers upheld the ban on TikTok, accusing the app of posting harmful content.

South Africa’s rand fell 0.7% on Friday. The Russian ruble also fell 0.6%. At the same time, the Turkish lira lost about 0.2%. The country’s central bank kept its policy rate at 8.5%, as forecast by analysts.