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The US dollar was set for a second week of broad 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 global peers 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 , 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 US 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 7.2303 per dollar <CNY=CFXS, while in offshore trading the dollar headed for its largest one-day rise against the yuan in a year, up 0.7 per cent to 7.2712.
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 , the best performing G10 currency of 2023, dropped more than 1 per cent overnight to 0.8894 per dollar, its weakest in four months, and slid to a nine-month low on the euro , nudging it closer to parity.
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 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 US Federal Reserve left its funds rate on hold between 5.25 per cent and 5.5 per cent 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 per cent.
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 per cent 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 hit its highest since 2008 this week at 165.37 and the Aussie broke above 100 yen for the first time since 2014.
With the dollar in the ascendant, the euro hit three-week low, trading down 0.4 per cent at $1.0815.
Sterling dropped 0.6 per cent to one-month lows at $1.258, following Thursday’s 1 per cent 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 was set for its sharpest weekly drop since January 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 0.2 per cent on the day at $65,300.