Sudden yuan drop ripples through Asia trade
Dollar/yen tests level that drew intervention in 2022
Rates advantage behind broad dollar support
(Updates prices at 1205 GMT)
The dollar headed for a second week of gains on Friday, with even a rate hike in Japan unable to halt its march, and a surprise cut in Switzerland highlighting the gap between the Federal Reserve and others in interest rate settings.
This week has marked a shift in the direction of global monetary policy, after a number of major central banks either made changes to their interest rates, or signalled that they intended to do so before too long.
The dollar was on course for its second largest weekly rise against a basket of currencies =USD , while rate-sensitive assets such as gold and stocks hit record highs.
"Each central bank has had an element of surprise this week and that's been reflected in the market, which is why we've seen such big moves - record highs in U.S. equities, on the DAX and big drops in sterling/dollar and dollar/yen going towards multi-decade highs," City Index strategist Fiona Cincotta said.
Expectations for policy easing in China too have piled pressure on its currency, for example, and it dropped sharply in the onshore session, spooking equity investors and prompting state banks to step in.
It was last at 7.229 per dollar CNY=CFXS , while in offshore trading CNH=D3 the dollar headed for its largest one-day rise against the yuan in a year, up 0.8% to 7.2778.
The Swiss National Bank had earlier delivered the biggest surprise of a week crammed with central bank meetings, cutting interest rates and citing the strength of the franc as a reason.
The franc CHF=EBS , the best performing G10 currency of 2023, has lost nearly 2% in value against the dollar this week, marking its largest weekly slide since mid-2022.
The Bank of Japan announced an historic shift out of negative short-term rates and longer-run yield caps, but it was so well telegraphed that the yen JPY=EBS fell on the news and was last a whisker from multi-decade lows at 151.51 per dollar.
"The stand-out for me has probably been the reaction of the yen from the BOJ. That has really dropped quite sharply on the back of that, just on the fact that the market was expecting a bit more of the Bank of Japan, in setting off on a new cycle and has been quite disappointed," City Index's Cincotta said.
The U.S. Federal Reserve left its funds rate on hold between 5.25% and 5.5% this week and stuck with projections for three cuts by year's end. But it also said it will not start moving until it has more confidence that inflation is sustainably falling toward 2%.
About 80 basis points of cuts are now priced in for this year - much lower than the 160 or so that had been priced in at the start of the year.
Dollar/yen is up 1.6% this week and near levels that prompted Japanese intervention in 2022, which has investors nervous while also looking for other currencies to buy and pocket the "carry", or difference between interest rates.
Euro/yen EURJPY= hit its highest since 2008 this week at 165.37 and the Aussie broke above 100 yen AUDJPY=R for the first time since 2014.
With the dollar in the ascendant, the euro EUR=EBS hit a three-week low, trading down 0.4% at $1.0816.
Sterling GBP=D3 dropped 0.6% to one-month lows at $1.258, following Thursday's 1% fall after the Bank of England left interest rates unchanged, this time backed by the two hawkish committee members who'd previously voted for a hike.
Bitcoin BTC= was set for its largest weekly drop since last August, with a 6% fall, as crypto markets have taken a step back from a powerful rally this week - though it will trade through until Sunday.
It was last down 2.2% on the day at $64,051, having fallen by some 13% since a record high close to $74,000 last week.
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