On Friday, most Asian currencies experienced sharp declines, succumbing to pressure from a resurgent dollar after an unexpected interest rate cut by the Swiss National Bank (SNB), prompting currency traders to favor the greenback.
In Asian trading, the dollar surged to a three-week high, extending its robust rebound from Thursday’s session as traders largely overlooked signals of potential interest rate cuts from the Federal Reserve.
The dollar index and dollar index futures recorded gains of 0.8% and 0.2%, respectively, during Asian trade on Thursday. The notable upswing in these indicators underscored immediate demand for the greenback.
Both metrics saw significant increases on Thursday following the SNB’s unanticipated interest rate cut, making it the first major central bank to take such action after a prolonged period of hiking rates in the aftermath of the COVID-19 pandemic. Consequently, the dollar emerged as the sole low-risk, high-yielding currency in the interim. Additionally, the greenback benefited from a dovish outlook from the Bank of England on Thursday, leading traders to favor it over the pound.
Moreover, a positive economic outlook for the United States further bolstered flows into the dollar, with the Fed significantly upgrading its growth forecast for 2024. While the central bank is anticipated to commence interest rate cuts by June, its comparatively hawkish stance relative to other central banks is expected to support the dollar.
USDCNY Weakens Past 7.2, PBOC Intervenes
Among the currencies adversely affected by the dollar’s strength, the Chinese yuan experienced significant pressure, exacerbated by prospects of further interest rate cuts by the People’s Bank of China (PBOC).
On Friday, the USDCNY pair surged by 0.4%, breaching the 7.2 level for the first time since November 2023. Reports suggested that the PBOC was actively selling dollars and purchasing yuan from the open market to bolster the Chinese currency.
The depreciation of the yuan occurred amidst indications from senior PBOC officials that there was still room for reducing the bank’s reserve requirement ratio, a move that would inject additional liquidity into the economy but would unfavorably impact the yuan.
USDJPY Reverses Post-BOJ Decline, Climbs Above 151
The Japanese yen remained relatively flat on Friday but was recuperating from significant overnight losses as the USDJPY pair reversed most of its declines following the Bank of Japan’s (BOJ) interest rate hike earlier in the week.
The USDJPY pair hovered around 151.56, nearing its highest level in four months. However, the yen’s further weakening was impeded by robust consumer price index data for February, reinforcing the BOJ’s recent policy shift.
Broader Asian Currencies Retreat
On the whole, broader Asian currencies experienced declines on Friday. The Australian dollar’s AUDUSD pair slid by 0.6%, while the South Korean won’s USDKRW pair surged by 0.4%.
Additionally, the Singapore dollar’s USDSGD pair rose by 0.3%, while the Indian rupee’s USDINR pair extended its advance beyond 83, nearing record-high territory.