Dollar tumbles in early Asia, bank rescues lift risk appetite –

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Singapore ( – The dollar slipped in early Asia on Friday morning, as risk sentiment improved after authorities and banks moved to ease pressure on the financial system in major markets, taking the heat off other major currencies that plunged earlier in the week after turmoil banking.

Major US banks on Thursday (16/3/2023) injected US$30 billion into First Republic Bank to rescue lenders caught in a widespread crisis, sparked by the collapse of two other US medium-sized banks over the past week.

The spread of cautious calm across markets on Friday provided room for gains in risk-sensitive currencies such as the Australian and New Zealand dollars, which were among the biggest gainers in Asian trading.

The Aussie gained 0.4 percent to $0.6684 while the kiwi lifted 0.3 percent to $0.62145.

The US$30 billion rescue package put together by powerful brokers from the US Treasury, Federal Reserve and major banks, follows Credit Suisse’s earlier announcement on Thursday (16/3/2023) that it will borrow up to US$54 billion of the Swiss central bank (SNB).

Credit Suisse has also been involved in widespread contagion following the collapse of US-based Silicon Valley Bank (SVB).

But, even as a 30 percent drop in shares of the Swiss lender sparked concerns about the health of European banks, the European Central Bank (ECB) went ahead with a 50 basis point interest rate increase at its policy meeting Thursday (16/3/2023).

ECB policy makers are trying to reassure investors that eurozone banks are resilient and if anything, a move to higher interest rates will boost their margins.

The euro’s reaction to the decision was muted, although it managed to add to a 0.3 percent gain on Thursday (16/3/2023). The euro was last trading 0.14 percent higher at $1.0625.

“The eurozone banking sector remains in fairly solid shape,” said Wells Fargo international economist Nick Bennenbroek.

“Should market tensions ease and volatility recede in the weeks and months ahead, persistent inflation in our view should be sufficient to trigger further (ECB) tightening.”

Elsewhere, sterling rose 0.15 percent to $1.2128, while the Swiss franc gained 0.1 percent. At the start of the week, the Swiss franc had fallen against the dollar the most in a day since 2015.

The Japanese yen remained high, and was last about 0.3 percent higher at 133.30 per dollar.

The fragile market sentiment has traders flocking to the yen – usually considered the safer bet in times of turmoil – as fears grow that the recent strain across US and European banks could be just the early stages of a crisis. widespread systemic.

“The market turnaround in the past week is not rooted in a banking crisis, in our view, but rather evidence of the financial rift resulting from the fastest rate hike campaign since the early 1980s,” said analysts at BlackRock Investment Institute.

“The market has woken up from the damage that approach has caused – a recession is forecast – and is starting to price it in.”

Next week’s Federal Reserve monetary policy meeting now moves to center stage. Some investors hope the Fed can slow down its aggressive rate hike campaign in a bid to ease pressure on the financial sector.

“The turmoil in the banking sector complicates the outlook for Fed policy, but the impact may be more nuanced than a Fed reversal,” said Philip Marey, senior US strategist at Rabobank.

The US dollar index slipped 0.12 percent to trade at 104.27.

Translator: Apep Suhendar
Editor: Nurul Aulia Badar


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