Herbert Lash and Amanda Cooper
NEW YORK/LONDON (Reuters) – The dollar headed for a second week of gains on Friday after a small rate hike in Japan gave the yen a brief reprieve and a surprise rate cut in Switzerland underscored the gap in interest rate policy between the Federal Reserve. and other central banks.
The week marked a shift in global monetary policy as the Swiss National Bank (SNB) and emerging market central banks cut rates or signaled their intention to do so, with June likely to be the moment for action by the European Central Bank.
The dollar rose against all G10 currencies except the yen as a relatively strong U.S. economy and high interest rates supported the carry trade. But Switzerland’s rate cut, the first by a major European central bank, marked the final shift.
“We got a bit of a surprise cut from the SNB this week,” said Sean Osborne, chief currency strategist at Scotiabank in Toronto. “People have extrapolated, of course, from a signaling point of view, what this might mean for other central banks in Europe.”
The Fed left the overnight rate at 5.25%-5.5% and stuck to its forecast of three cuts by the end of the year. But he also said he would not cut the rate until he was confident inflation was coming down sustainably to the 2% target.
Rate cuts are priced in at about 84 basis points this year – much lower than about 160 at the start of the year – but higher than earlier in the week as bets on rate cuts gained momentum.
Sterling fell 0.5% to a one-month low of 1.258, after falling 1% on Thursday when the Bank of England left rates unchanged. However, the Bank of England showed a more dovish stance as two hawkish committee members abandoned their previous call for a rate hike.
“What happened with the SNB and what happened with the Bank of England really opened the door to cutting rates earlier than expected, it puts the dollar in a better light,” said Marvin Law, the firm’s senior global macro strategist. State Street (NYSE:) in Boston.
“Everything is calm, but the dollar is a little stronger.”
The Swiss franc, the best-performing G10 currency in 2023, has lost about 1.7% against the dollar this week and about 6.8% this year.
The US currency rose 0.45% against six major trading partners, while the dollar weakened 0.12% against the Japanese yen to 151.44 per dollar.
The dollar has risen about 1.5% against the yen this week after approaching levels that prompted Japanese intervention in 2022.
The euro/yen pair hit its highest level since 2008 at 165.37 this week and broke the 100 yen mark for the first time since 2014.
Against the backdrop of a rising dollar, the euro reached a three-week low. It was last trading down 0.5% at $1.0806.
The Bank of Japan announced a historic move away from negative short-term rates and long-term yield caps, but it was so well communicated that the yen fell on the news.
Expectations of policy easing in China also added to pressure on its currency, which fell sharply during the domestic session, spooking equity investors and prompting state-owned banks to intervene. [CNY/][MKTS/GLOB]
It was last at 7.229 to the dollar, while in offshore trading the greenback posted its biggest one-day gain against the yuan in a year, rising 0.77% to 7.2769.
posted its biggest weekly drop since August last year, down around 6.7%, as cryptocurrency markets took a step back after a strong rally this week, although it will trade until Sunday.
It was last down 2.74% at $63,674.36, down about 13% from a record high of close to $74,000 last week.