The safe-haven U.S. dollar had difficulty gaining traction on Wednesday after two consecutive days of losses. Global financial markets found some stability in the hopes of avoiding a full-scale banking crisis.
The dollar index, which compares the currency to six major counterparts, rose slightly by 0.08% to 102.57 during Asian trading, following around 0.3% declines in the past two sessions. This weakness occurred despite increased U.S. Treasury yields, also caused by decreased demand for the safest assets.
The yen experienced fluctuations leading up to Friday’s end of the Japanese fiscal year. The dollar climbed 0.59% to 131.68 yen, reaching a one-week high of 131.80.
The yen had fallen 0.5% the day before when it unexpectedly moved in the opposite direction of long-term U.S. Treasury yields.
In Tokyo trading, the 10-year benchmark U.S. yield rose by up to 1.5 basis points to a new one-week high of 3.583% but eventually settled at 3.5677%. Last Friday, the yield had fallen to a six-month low of 3.285%.
Ray Attrill, Head of Foreign-Exchange Strategy at National Australia Bank (OTC: NABZY), said, “U.S. bond volatility has driven most of the volatility in dollar-yen, so it makes sense that we’re closer to 130 than 140 because U.S. yields are that much lower.”
Regarding Tuesday’s yen rally, Attrill added, “it’s not following the rules as one might expect, which maybe says that coming into the fiscal year-end, must-do flows are having a disproportionate effect.”
In other news, the Australian dollar fell 0.16% to $0.6698 after Australian consumer inflation slowed to an eight-month low, strengthening the argument for the Reserve Bank to hold off on raising rates next week. Futures now indicate only a 5% chance of a rate hike, compared to 15% before the data.
The U.S. currency weakened as investors found comfort in First Citizens BancShares’ agreement to acquire all of the failed lender Silicon Valley Bank’s deposits and loans, as well as comments by Michael Barr, the Federal Reserve’s Vice Chairman for Supervision, who said that SVB’s problems were due to “terrible” risk management, implying it could be an isolated incident.
However, traders remain highly vigilant for any additional signs of instability in the banking system.
Joseph Capurso, a strategist at Commonwealth Bank of Australia (OTC: CMWAY), wrote in a client note that “issues in U.S. banks will remain the dominant influence on the USD in the near term.” He emphasized the significance of upcoming weekly data on money market flows, which “will likely highlight the shift of deposits out of small U.S. banks into large banks.”
The euro fell 0.1% to $1.0834, and the British pound decreased by 0.12% to $1.23265.
The risk-sensitive New Zealand dollar climbed 0.13% to $0.6261. Traders anticipate a quarter-point rate hike at next week’s Reserve Bank of New Zealand policy meeting.
Bitcoin recovered to around $27,600 after facing issues at the world’s largest cryptocurrency exchange, Binance, sued by the U.S. Commodity Futures Trading Commission (CFTC).
The digital currency had fallen to as low as $26,541 on Monday after retreating from a nine-month peak of $29,380 last week.
