The dollar strengthened today. The dollar index rose 0.078% to 103.07 against the basket of six major currencies. It also added 0.5% on Friday due to risk-averse market sentiment. Deutsche Bank shares plunged nearly 9% that day, reinforcing fears about the global banking system. The dollar generally benefits from such a frame of mind due to its safe haven status.
The Japanese yen is also a safe haven currency. Thanks to that, it shot up almost to its seven-week high. Traders digested the moves by governments and regulators as the latter sought to ease tension in the markets and reassure trading participants that the global banking system remained strong.
Still, global bank stocks suffered badly during March, especially after two US lenders suddenly collapsed. Swiss bank Credit Suisse was also on the verge of bankruptcy, but another bank stepped in to rescue it. The authorities also tried to ease investor fears.
Marc Chandler, chief market strategist at Bannockburn Global Forex, noted that pragmatic action by governments, central banks and the private sector has so far not been enough to restore trader confidence.
First Citizens BancShares Inc will acquire all of Silicon Valley Bank’s loans and deposits from the regulator. The Federal Deposit Insurance Corporation announced it on Monday. Silicon Valley Bank is one of the regional banks that went bankrupt in the United States, causing such a stir in the markets. This news somewhat calmed the customers, fearing that they would lose their money.
In addition, on Friday, the US Financial Stability Oversight Board stated that the US banking system remained “solid and resilient,” adding that while some institutions faced some difficulties, the overall picture it was satisfying. Despite this, the merchants were wary.
The Japanese yen hit a seven-week high recently.
The safe-haven yen jumped to a seven-week high, trading at 129.65 to the dollar on Friday. Overall, it rose almost 4% in March. The yen is trading today at 130.75.
Meanwhile, the common currency shot up 0.05% to $1.0764 during this session. However, the euro shaved 0.6% on Friday. The pound sterling was trading at $1.2235. It added 0.05% the day after falling 0.5% on Friday.
In Asia, the Australian dollar rose 0.09% to $0.665 despite that risk-off mood. The New Zealand dollar was up 0.03% at $0.620.
On Wednesday, the US Federal Reserve delivered a 25 basis point hike. Analysts expected such a result, especially after the banking problems. Some of them predicted that the Fed could avoid hikes, but that was not the case. Inflation remains high and the Fed needs higher rates to slow its growth. However, the agency plans to pause the tightening in the coming months if the turmoil in the banking sector continues. Fed Chairman Jerome Powell also stated that the central bank would offer further rate hikes if necessary.
The CME FedWatch tool showed that there is more than an 80% chance that the central bank will stand firm on further tightening in May. However, traders expect a rate cut in July. Chandler noted that despite Powell’s attempt to maintain hawkish rhetoric, Federal Reserve fund futures are pricing in dovish policy in the coming months.
How are emerging market currencies doing?
Emerging Asian currencies started this week in bearish territory. The firm dollar weighed on them. Germany’s largest bank ran into trouble, its shares fell. This news reignited fears of a global banking crisis.
On Monday, Thailand’s baht fell 0.3%, the biggest loss in the region. The Philippine peso also plunged 0.2% after rising about 0.7% last week. Additionally, the South Korean won declined, along with the Singapore dollar. The Indonesian rupiah was also down 0.2%, posting its second consecutive session of losses.
Josh Gilbert, market analyst at eToro, noted that traders remain cautious about the current state of the banking sector. Therefore, risk aversion sentiment is strong in the markets. He added that offshore banking problems should not affect Asia much. Therefore, it will have a limited impact on emerging market currencies. Furthermore, Asian banks are considerably more diverse. They have different business models, as well as different risk profiles.
Investors are currently focusing on the Bank of Thailand. They expect it to raise interest rates by 25 basis points this week. That would be his fifth consecutive rate hike. After this increase, the bank is likely to keep its policy rate stable until 2024.
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