Investing.com – Most Asian currencies fell sharply on Friday, pressured by the dollar’s recovery as a surprise interest rate cut by the Swiss National Bank sent currency traders straight into the U.S. dollar.
The dollar rose to a three-week high in Asian trade, extending a strong rebound from Thursday as traders largely shrugged off interest rate cut signals from the Federal Reserve.
Dollar strengthens to 3-week high as SNB cut dwarfs Fed forecasts
In Asian trading on Thursday, the indices and rose by 0.8% and 0.2%, respectively. Excessive growth in the dollar index signaled an increase in demand for the dollar.
Both dollar indicators rose on Thursday after the SNB unexpectedly cut interest rates, becoming the first major central bank to do so after a long cycle of rate hikes in the wake of the COVID-19 pandemic.
As a result, the dollar remained the only low-risk, high-return currency in the interim period. The dollar also benefited from a dovish Bank of England forecast on Thursday, which showed traders dumped in favor of the greenback.
The positive outlook for the U.S. economy also contributed to dollar inflows. The Federal Reserve sharply raised its economic growth forecast for 2024.
Although the central bank is weak, its relative aggressiveness compared to other central banks is expected to benefit the dollar.
USDCNY weakens above 7.2, NBK intervention expected
The Chinese yuan was among the hardest hit by the dollar’s strength, with the possibility of further interest rate cuts by the People’s Bank of China also adding to the pressure.
The pair rose 0.4% on Friday, breaking above the 7.2 level for the first time since November 2023. Reports said the PBOC was selling dollars and buying yuan on the open market to support the Chinese currency.
The yuan losses came after top PBOC officials signaled they still have more room to cut the yuan, which would open up more liquidity in the economy. But such a move bodes bad news for the yuan.
USDJPY reverses after BOJ fall and returns above 151
The Japanese yen was unchanged on Friday but suffered sharp losses overnight as the pair reversed much of the declines that occurred after the Bank of Japan raised interest rates this week.
USDJPY hovered at 151.56, near its highest level in four months.
However, further weakness in the yen was halted by strong February data, which further bolstered confidence in the Bank of Japan’s recent policy turnaround.
Asian currencies fell broadly on Friday. The Australian dollar fell 0.6%, while the South Korean won rose 0.4%.
The Singapore dollar rose 0.3%, while the Indian rupee rose above 83 and neared a record high.