Dollar, Yen weaken in early trade

20 Mar 2023 , 08:45 AM

After governments and regulators took action to stop the spread of a smoldering banking crisis, currency markets displayed some cautious optimism, with the safe haven dollar losing ground and the yen falling amid an increase in Treasury yields.

While the euro moved up for a third consecutive day, the risk-sensitive Aussie dollar surged to a two-week high.

A concerted initiative to increase market liquidity was launched over the weekend by the Federal Reserve, the European Central Bank, the Bank of England, the Swiss National Bank, the Bank of Canada, and the Bank of Japan. It came after negotiations between Swiss authorities and UBS to purchase Credit Suisse, but at a significant discount and with significant debt write-downs.

As 10-year Treasury yields increased 12 basis points to 3.52% to start the week, moving away from the low of 3.369% from Thursday, the yen fell 0.6% to 132.59 per dollar.

The Japanese yen increased 2.5% last week. Moreover, the dollar declined generally.

The euro increased by 0.17% to $1.06885, and the pound rose by 0.1% to $1.2190.

Earlier, the Australian dollar touched $0.6743 for the first time since March 7 and then increased by 0.3% to $0.6721.

The banking system is the immediate focus of the currency markets, but a Fed rate-setting meeting on Wednesday looms large. Even though the global banking sector is still vulnerable to contagion concerns, traders continue to believe that a quarter-point increase is likely.

Yet, the money markets are currently set up for a rate peak in May at about 4.79%, followed by 72 basis points of decreases over the rest of the year.

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