The yen on Friday posted its first weekly gain in nearly a month, driven by safe-haven demand as bank sector turmoil in the US unfolds, while the greenback fell as traders priced in more aggressive rate cuts from the US Federal Reserve.
The euro edged away from its recent one-year peak and closed at US$1.1018, after the European Central Bank (ECB) on Thursday slowed the pace of its interest rate increases with a 25-basis-point rise.
Although ECB President Christine Lagarde signaled more tightening to come, markets pared back their expectations on how much further rates would rise.
Photo: Reuters
“Lagarde was hawkish in her press conference, but I think financial markets didn’t really buy her view on further rate rises in coming months,” Commonwealth Bank of Australia currency strategist Carol Kong said.
In the broader currency market, the yen closed 0.42 lower against the greenback at ￥134.86 per US dollar, but posted a weekly gain of 1.1 percent, snapping three straight weeks of losses.
“The Japanese yen has slowly gained back its appeal of safe haven status, and has definitely been supported by concerns about US regional banks and the associated safe-haven demand,” Kong said.
A deepening crisis across US regional banks has kept investors on tenterhooks, with pressure growing on US regulators to take more steps to shore up the sector.
Shares of PacWest Bancorp plunged on Thursday, dragging other regional lenders down after the Los Angeles-based bank’s plan to explore strategic options heightened investor fears.
Canada’s Toronto-Dominion Bank Group the same day also called off its US$13.4 billion takeover of First Horizon Corp, in another sign of stress within the sector.
Traders have since priced in more aggressive rate cuts from the Fed, with Fed funds futures implying a small chance that cuts could come as soon as next month and through to the end of the year.
That left the greenback broadly lower on Friday, with the US dollar index slipping 0.12 percent to 101.28.
The Australian dollar was among the largest beneficiaries of the sliding dollar, rising more than 0.8 percent and touching multi-week highs.
The New Taiwan dollar gained against the US dollar on Friday, rising NT$0.025 to close at NT$30.641, up 0.32 percent from NT$30.740 a week earlier.
Sterling gained 0.47 percent to close at US$1.2633.
“For the Fed’s June decision, inflation data and employment indicators ... along with bank lending standards will be key to watch. The debt ceiling negotiations are another important risk,” said Sonia Meskin, head of US macro at BNY Mellon.
“We believe the Fed is unlikely to contemplate cutting rates before 2024.”
Additional reporting by CNA
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