The dollar struggled today. The currency plunged, the sentiment of the currency market improved. Several major US stockbrokers banded together to help out a regional lender, hoping to ease some of the strain on the financial system. The government and major banks also participated, contributing funds on Thursday. As a result, First Republic Bank (FRC.N) recovered from the recent crisis. Markets also took a more upbeat mood despite the recent scare caused by the Silicon Valley Bank collapse that rocked them.
Three regional banks unexpectedly failed late last week, reminding traders of the 2008 financial crisis. Dozens of institutions collapsed during the latter, some of them surviving only after the government and central bank helped them, spending billions of dollars in the process.
In this case, the authorities and several major banks had to intervene again to help three smaller US lenders. At the same time, Credit Suisse had to ask the Swiss central bank for help in Europe. It is the first major world bank to get help from the latter since the financial crisis. However, that news encouraged investors. People also stopped withdrawing their deposits.
On Friday, risk appetite grew in global financial markets. Consequently, the Australian and New Zealand dollars soared. Traders felt confident enough to sell the dollar, which is generally considered a safe haven currency. The authorities and major banks showed that they were ready to help lenders in trouble. Market participants believe that the European Central Bank will be able to weather the storm, given its strength. The new data indicates that the eurozone economy remains relatively strong.
What do the analysts say?
TraderX strategist Michael Brown noted that risk sentiment would likely strengthen if markets do not receive more negative headlines from the banking sector. Equities are currently recovering while Treasuries are falling. Meanwhile, a combination of a tight position and a relief rally weighs on the dollar.
On Friday, the US dollar index fell 0.21%. It changed hands at 104.07 at last. On the other hand, the euro and the Japanese yen soared. The European Central Bank raised its interest rates by 50 basis points at its policy meeting yesterday. President Christine Lagarde and other ECB policymakers also tried to reassure traders. They announced that eurozone banks remained resilient, adding that higher interest rates should further boost their margins.
Analysts noted that if the central bank decided to offer a smaller rate hike, that would have seriously concerned market participants, considering the recent turmoil. Such a course could also lead to a large sale. However, the EBC’s decision reinforced the positive sentiment.
While investors continue to welcome rate hikes, their expectations are more subdued compared to when banks started tightening. However, inflation remains high. Therefore, the banks must continue the walk to hinder it.
On Friday, the common currency jumped 0.3% against the dollar, trading at $1.0646. It also soared against sterling, changing hands 0.2% to 87.75 pence. Earlier this week, the euro was struggling to gain against the dollar. It was also down 0.8% against the pound, but managed to recoup some of these losses today.
Meanwhile, the British currency rose 0.12% to $1.2132. The Swiss franc also soared 0.35% today. The franc collapsed against the dollar earlier in the week, its biggest one-day loss since 2015.
How are the yen and other Asian currencies doing?
The Japanese yen is a safe haven. That means it often rallies in times of high market volatility or risk-off sentiment. However, the currency jumped 0.5% to 133.13 per USD today, despite improving sentiment. It looked headed for a 1% weekly gain.
The Japan Financial Services Agency, the Ministry of Finance and BOJ officials plan to meet later on Friday. They will discuss global financial markets, along with the possible outcomes of the US banking crisis.
The Australian dollar rose 0.8% to $0.6707 on Friday. At the same time, the kiwi rose 0.9% to $0.625.
Also, emerging market assets are trading in the green today. The MSCI Index for Emerging Currencies rose 0.3%. Its stock gauge also gained 1.4%. The South African rand added 0.5% against the US dollar on Friday. In addition, the Czech crown and the Hungarian forint each rose approximately 0.2% against the euro.
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