As results and global economic concerns grew on Tuesday, the dollar climbed, and the euro fell from a 10-month high.
Since March, the U.S. dollar index has fallen 3.3% to 101.37.
On Monday, First Republic Bank (FRC.N) reported falling deposits, while UBS (UBSG.S) reported a 52% drop in quarterly profitability, highlighting stability issues.
However, central banks will reduce their dollar liquidity operations starting May with the U.S. Federal Reserve, another indicator that March’s financial market turbulence is passed.
Even though the Bank of Japan’s (BOJ) new governor Kazuo Ueda signaled he would not change policy, haven currencies like the yen strengthened. His first BOJ meeting ends Friday.
“Respect Ueda’s instruction that Friday won’t alter. “Because inflation is well above target, I think the BOJ will tighten in June or July,” said Danske Bank’s FX and rates strategy director, Jens Naervig Pedersen.
“I see a prospect for a stronger yen on the back of monetary tightening in Japan but also because we’re reaching the end of the tightening cycle in the U.S.,” he added.
After hitting an eight-year low of 148.635, the yen gained 0.3% to 133.855 per dollar and 0.4% to 147.67 per euro.
The euro fell 0.1% versus the dollar but remained above $1.10, up 1.7% in April and almost 4% since March.
“The euro has performed well against most currencies recently because of the optimism around the outlook for the euro zone economy and the market anticipating more rate hikes from the ECB (European Central Bank),” Danske Bank’s Pedersen said.
ECB board member Isabel Schnabel told Politico that a 50-bp rate rise was possible, depending on data, including inflation readings expected two days before May’s meeting.
In an interview with Le Figaro, French ECB policymaker Francois Villeroy de Galhau called for modest rises, but markets have concentrated on the expectation of additional hikes.
Futures pricing suggests a 2/3 possibility of a 25 bp ECB raise and a 1/3 chance of a 50 bp hike.
The safe-haven Swiss franc gained 0.1% against the strengthening dollar.
The Swiss franc peaked against the yen in two decades at 151.36, according to Electronic Broking Services statistics from the early 2000s.
Sterling fell 0.1% to $1.2473, close to a 10-month high of $1.2545 achieved earlier this month.
As traders awaited Wednesday’s inflation news, the Kiwi stood at $0.6152 and the Aussie at $0.6654.
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