Dollar Eases As Traders Weigh Fed’s Rate Path; Yen Rises

Dollar Eases As Traders Weigh Fed's Rate Path; Yen Rises

By Ankur Banerjee

SINGAPORE (Reuters) – The dollar was pinned near seven-week lows on Friday as nervousness over banks kept investors skittish and traders assessed the Federal Reserve’s chances of a pause to interest rate hikes.

The dollar index, which measures the currency against six major rivals, fell 0.097% at 102.48, just above the seven-week low of 101.91 it touched on Thursday. The index eked out a small gain on Thursday, its first in six trading days.

The Fed on Wednesday raised interest rates by 25 basis points, as expected, but took a cautious stance on the outlook because of banking sector turmoil even as Fed Chair Jerome Powell kept the door open on further rate increases if necessary.

U.S. Treasury Secretary Janet Yellen on Thursday reiterated that she was prepared to take further action to ensure that Americans’ bank deposits stayed safe, to ease investor nerves.

Markets are pricing in a 68% chance of the Fed standing pat on interest rates in the next meeting and a 32% chance of another 25 bps hike, according to CME FedWatch tool.

Banking stocks have been battered in the last two weeks following the sudden failures of two regional U.S. lenders and the emergency sale of embattled Swiss bank Credit Suisse to rival UBS.

Christopher Wong, currency strategist at OCBC, said the FX world seemed to suggest a bout of risk aversion with safe haven proxies, gold and yen outperforming and most other currencies softer.

“I think with sentiment still fragile, price action can swing both ways depending on whether there are any contagion surprises.”

The yen strengthened 0.51% to 130.16 per dollar, having touched a six-week high of 130.055 earlier in the session. Japan’s core consumer inflation slowed in February, but an index stripping away energy costs hit a four-decade high, data showed on Friday.

With inflation still exceeding the Bank of Japan’s 2% target, the data will keep alive market expectations of a near-term tweak to its bond yield control policy, according to analysts.

Meanwhile, the Bank of England on Thursday raised interest rates by 25 bps, but said a surprise resurgence in inflation would probably fade fast, stoking speculation it had ended its run of hikes.

Sterling was flat at $1.2285, having touched a seven week high of $1.2341 on Thursday in volatile trading. The euro was up 0.03% at $1.0833, just a shade below the seven-week high of $1.0930 it touched on Thursday.

Investor focus will be on the flash Purchasing Managers’ Index (PMI) data for March from the Eurozone, Germany, France and the UK due later in the day to gauge the state of the European economy.

“The market will be looking at PMI releases around the globe for an update on not just activity but what businesses are reporting on demand, supply chain disinflation, wages, and pricing power,” said Rodrigo Catril, a senior currency strategist at currency strategist at National Australia Bank.

The Australian dollar rose 0.07% to $0.669, while the kiwi fell 0.14% to $0.624.

========================================================

Currency bid prices at 0550 GMT

Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid

Previous Change

Session

Euro/Dollar $1.0835 $1.0832 +0.03% +1.12% +1.0839 +1.0818

Dollar/Yen 130.1250 130.7200 -0.48% -0.87% +130.9300 +130.0950

Euro/Yen 140.99 141.73 -0.52% +0.49% +141.8500 +140.9000

Dollar/Swiss 0.9159 0.9164 -0.08% -0.97% +0.9179 +0.9157

Sterling/Dollar 1.2285 1.2285 +0.02% +1.61% +1.2290 +1.2263

Dollar/Canadian 1.3719 1.3716 +0.07% +1.31% +1.3736 +1.3710

Aussie/Dollar 0.6686 0.6684 +0.01% -1.94% +0.6689 +0.6660

NZ 0.6238 0.6249 -0.18% -1.76% +0.6252 +0.6232

Dollar/Dollar

All spots

Tokyo spots

Europe spots

Volatilities

Tokyo Forex market info from BOJ

(Reporting by Ankur Banerjee in Singapore; Editing by Jamie Freed and Muralikumar Anantharaman)