Dollar Set for Weekly Rise as Swiss Rate Cut Highlights Potential Interest Rate Gap -March 22, 2024 at 6:33 a.m.

The US dollar headed for a second week of gains on Friday, even a rate hike in Japan failed to halt its advance, and a surprise decline in Switzerland highlighted the gap between the Federal Reserve and others country in terms of setting interest rates.

Expectations of policy easing in China put pressure on its currency, for example, and it fell sharply to its lowest level in four months in the onshore session, spooking stock investors and prompting banks state to intervene.

The dollar was last at 7.2254, and this movement was reflected in the foreign exchange markets, leading to a general rise in the dollar in trade with Asia. The euro hit its lowest level in three weeks at $1.0834, down 0.5% for the week.

The Australian and New Zealand dollars fell more than 0.5% each and are expected to post weekly losses. At $0.6524, the Aussie was down 0.5% for the week – having gained some support on the way down following Thursday's jobs figures.

The kiwi, down 1.2% to a four-month low of $0.6012, is squeezed by weaker economic data as strong US data suggests rates will fall faster in New Zealand .

The Swiss National Bank pulled off the biggest surprise of a week full of central bank meetings, cutting interest rates and citing the strong franc as the reason.

“It's going to get a few people thinking about what's next,” said Imre Speizer, a strategist at Westpac in Christchurch. “The US economy is in good shape and it does not appear that the Fed should be in a hurry (to cut rates).

The franc, the G10's best-performing currency in 2023, fell more than 1% overnight to 0.8894 per dollar, its weakest level in four months, and slipped to a nine-month low for the euro, bringing it closer to parity.

The Bank of Japan announced a historic shift by abandoning negative short-term rates and long-term yield caps, but it was telegraphed so well that the yen fell on the news and came within a hair of its lowest levels in several decades, at 151.51 per dollar.

The US Federal Reserve kept its interest rate between 5.25% and 5.5% this week and maintained its forecast of three cuts by the end of the year. But she also said she would not start acting until she was certain that inflation was falling sustainably towards 2%.

About 80 basis points of reduction are now planned for this year, far less than the 160 basis points planned at the start of the year.

“With these adjustments and the reduction in the number of Fed cuts, we see that dollar support is slowly starting to come back into the picture,” said Patrick Hu, G10 currency trader at Citi.

“This is one of the key factors why the dollar/yen did not fall, but instead started to rise.

The dollar/yen is up 1.6% this week and approaching levels that prompted Japan to intervene in 2022, making investors nervous while looking for other currencies to buy and pocket the carry “, that is to say the difference between the interest rates.

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

Sterling fell last night after the Bank of England left interest rates unchanged, this time with the support of the two committee members who had previously voted in favor of a hike.

For the week, the British pound is down 0.7% and touched a three-week low of $1.2635 during the Asian session.

The U.S. Dollar Index is up for the second straight week, rising 0.8% to 104.21.

Bitcoin is poised for its biggest weekly decline since January as crypto markets took a step back after a powerful rally this week – although it trades through Sunday.

It last hit $65,900.

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