Most Asian currencies fell sharply on Friday, pressured by a rally in the dollar as a surprise rate cut by the Swiss National Bank sent currency traders flocking to the greenback.
The dollar rose to a three-week high in Asia, extending a strong rally from Thursday as the SNB's rate cut left traders largely ignoring signals of a rate cut from the Federal Reserve.
Dollar at 3-week high as SNB rate cut overshadows Fed outlook
The dollar index and dollar index futures rose 0.8% and 0.2%, respectively, in Asian trading on Thursday. The overshoot in the dollar index signals more immediate demand for the greenback.
Both dollar indexes surged on Thursday after the SNB unexpectedly cut interest rates, becoming the first major central bank to do so after a prolonged rate-hiking cycle following the COVID-19 pandemic.
This leaves the dollar as the only low-risk, high-return currency in the interim. The greenback also benefited from the dovish outlook from the Bank of England on Thursday, which saw traders sell sterling to buy dollars.
The positive outlook for the US economy also facilitates flows into the dollar. The Fed has sharply raised its growth outlook for 2024.
While the central bank is still expected to start cutting interest rates in June, its relatively hawkish stance, compared to other central banks, is expected to benefit the dollar.
USD/CNY Weakens at 7.2, PBOC Seemed to Be Intervening
China's yuan has been among the hardest hit, with the possibility of more rate cuts by the People's Bank of China also adding pressure.
USD/CNY rose 0.4% on Friday, breaking above 7.2 for the first time since November 2023. Reports said the PBOC is selling dollars and buying yuan from the open market to support the Chinese currency.
The yuan fell as top PBOC officials signaled that they still had room to cut banks’ reserve requirement ratios, which would release more liquidity into the economy. But such a move bodes ill for the yuan.
USD/JPY reverses decline, back above 151
The Japanese yen was flat on Friday, but is suffering sharp overnight losses as USD/JPY reversed most of its losses after the Bank of Japan raised interest rates this week.
USD/JPY hovered around 151.56 – near a four-month high.
However, further weakness in the yen was capped by strong consumer price index data for February, which further bolstered confidence in the BOJ's recent policy pivot.
Broader Asian currencies fell on Friday. The Australian dollar AUD/USD pair fell 0.6%, while the Korean won USD/KRW pair rose 0.4%.
Singapore dollar USD/SGD rose 0.3%, while Indian rupee USD/INR moved further above 83 and closer to record high territory.
Source: Investing
