A European and global market outlook from For months, markets have predicted a dollar slump as U.S. rates are expected to fall this year. That was wishful thinking till today.
On Friday, the Japanese yen fell deeper into intervention zone while the Chinese yuan broke a major milestone versus the dollar. Governments tried to protect the currencies, but failed.
The yen has lost more than 1% versus the dollar since the Bank of Japan's historic rate hike on Tuesday. The highly expected move had counter-intuitively propelled it into free slide, sending traders back into 'carry trades' and leaving it just a whisker away from 2022's multi-decade low.
Japanese government officials have verbally defended the currency, keeping investors on edge for action. Yen weakening caused the yuan to fall below the psychologically crucial 7.2 per dollar barrier on Friday, prompting state-owned banks to buy dollars.
At the end of last year, economists projected the dollar's surge to plateau in 2024 after two years of rapid rate hikes by the Federal Reserve. Any dollar drop has been brief. After the Fed reaffirmed its three rate drop forecast this week, it fell.
After a surprise rate decrease from the Swiss National Bank and a dovish tone from the BoE, the dollar gained favor in less than 24 hours, leading to selling of the Swiss franc and pounds for dollars.
That raised expectations for a June rate cut by the ECB and BoE but not the Fed. "It doesn't seem that when the Fed cuts rates, there's automatic dollar easing if the ECB and other G10 central banks are doing the same or more," said ING's Asia-Pacific regional head of research Rob Carnell.
Emerging Asia will suffer more as the dollar presses their currencies and makes it tougher for central banks to loosen monetary policy.
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