Get 40% Off
💰 Buffett reveals a $6.7B stake in Chubb. Copy the full portfolio for FREE with InvestingPro’s Stock Ideas toolCopy Portfolio

Dollar strengthens after big shift in global rate outlook

Published 03/21/2024, 09:19 PM
Updated 03/22/2024, 03:16 PM
© Reuters. FILE PHOTO: Woman holds U.S. dollar banknotes in this illustration taken May 30, 2022. REUTERS/Dado Ruvic/Illustration/File Photo
EUR/USD
-
GBP/USD
-
USD/JPY
-
USD/CHF
-
USD/CNY
-
BTC/USD
-

By Herbert Lash and Amanda Cooper

NEW YORK/LONDON (Reuters) -The dollar headed toward a second week of gains on Friday, after a slight rate hike in Japan gave the yen a slight reprieve and a surprise cut in Switzerland highlighted the gap in interest rate policy between the Federal Reserve and other central banks.

The week marked a shift in global monetary policy as the Swiss National Bank (SNB) and central banks in developing countries cut rates or indicated their intention to do so, with June the likely moment for the European Central Bank to move.

The dollar rose against all G-10 currencies except the yen, as the relatively strong U.S. economy and high interest rates kept the carry trade alive. But the Swiss rate cut, the first by a major central bank in Europe, marked a definitive shift.

"We had a somewhat surprising cut from the SNB this week," said Shaun Osborne, chief FX strategist at Scotiabank in Toronto. "People have been extrapolating, certainly from a signaling point of view, what that might mean for other central banks in Europe."

The Fed left its overnight rate on hold between 5.25%-5.5% and stuck with projections for three cuts by year's end. But it also said it would not cut until it was confident that inflation was sustainably declining toward its 2% target.

About 84 basis points of cuts are priced in for this year - much lower than the 160 or so at the start of the year - but higher than earlier in the week as rate cut bets gained steam.

3rd party Ad. Not an offer or recommendation by Investing.com. See disclosure here or remove ads .

Sterling dropped 0.5%, hitting a one-month low at 1.258, after a 1% drop on Thursday when the Bank of England left rates unchanged. But the BoE revealed a more dovish tilt as two hawkish committee members dropped their prior call for a hike.

"What happened out of the SNB and what happened with the BoE really opening the door to rate cuts earlier than expected, that's putting the dollar in a better light," said Marvin Loh, senior global macro strategist at State Street (NYSE:STT) in Boston.

"Things are calm, but the dollar is a little bit stronger."

The Swiss franc, the best performing G10 currency of 2023, has lost about 1.7% in value against the dollar this week and about 6.8% so far this year.

The dollar index, a measure of the U.S. currency against six major trading partners, rose 0.45% while the dollar weakened 0.12% against the Japanese yen at 151.44 per dollar.

The dollar is up about 1.5% this week versus the yen after approaching levels that prompted Japanese intervention in 2022.

Euro/yen hit its highest since 2008 this week at 165.37 and the Aussie broke above 100 yen for the first time since 2014.

With the dollar in the ascendant, the euro hit a three-week low. It was last trading down 0.5% at $1.0806.

The Bank of Japan announced an historic shift out of negative short-term rates and longer-run yield caps, but it was so well telegraphed that the yen fell on the news.

Expectations for policy easing in China too have piled pressure on its currency, which dropped sharply in the onshore session, spooking equity investors and prompting state banks to step in. [CNY/][MKTS/GLOB]

3rd party Ad. Not an offer or recommendation by Investing.com. See disclosure here or remove ads .

It was last at 7.229 per dollar, while in offshore trading the dollar headed for its largest one-day rise against the yuan in a year, up 0.77% to 7.2769.

Bitcoin was set for its largest weekly drop since last August, with a roughly 6.7% fall, as crypto markets have taken a step back from a powerful rally this week - though it will trade through until Sunday.

It was last down 2.74% at $63,674.36, having fallen by some 13% since a record high close to $74,000 last week.

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.