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A look at the day ahead in European and global markets
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By Rae Wee, Asia Markets Correspondent
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Markets have been betting on a dollar downturn for months on the view that U.S. rates would eventually have to fall at some point this year. Until now, that has been wishful thinking.
The yen and the yuan were the latest to fall prey to a resurgent dollar on Friday, with the Japanese currency slipping deeper into intervention territory and the Chinese yuan breaching a key level against the greenback.
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U.S. 100-dollar banknotes, Chinese 100-yuan banknotes, and a Japanese 1000-yen banknote, are seen in a picture illustration in Beijing, China, January 21, 2016. REUTERS/Jason Lee/FILE PHOTO Purchase Licensing Rights
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Respective authorities stepped in to defend the currencies, but their efforts were in vain.
Since the Bank of Japan’s landmark rate hike on Tuesday, the yen has fallen more than 1% against the dollar. That’s left it just a whisker away from 2022’s multi-decade low, as the highly anticipated move had counter-intuitively sent it into free fall with traders scurrying back into popular ‘carry trades’.
Japanese government officials have kept up their verbal defence of the currency, keeping investors on their toes for any signs of intervention.
The yen’s weakness also spilled over to the yuan which weakened past the psychologically important 7.2 per dollar level on Friday and prompted state-owned banks to step in to buy the yuan for dollars.
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With the dollar having been in the driver’s seat for the most part of the past two years since the Federal Reserve kicked off its flurry of rate hikes, analysts had, at the end of last year, expected its rally to stall come 2024.
Yet, any fall in the greenback has so far been short lived. Its latest move lower came after the Fed this week maintained its projection for three rate cuts this year.
In less than 24 hours, however, the dollar was back in favour after a surprise rate cut from the Swiss National Bank and a dovish tilt from the Bank of England (BoE) sparked selling in the Swiss franc and sterling for dollars.
That ramped up expectations for a June rate cut by the European Central Bank and the BoE, but less so for the Fed.
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Key developments that could influence markets on Friday:
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- UK retail sales (February)
- Germany import prices (January)
- Reopening of 1-month, 3-month and 6-month UK government debt auctions
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Graphics are produced by Reuters.
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Opinions expressed are those of the author. They do not reflect the views of Reuters News, which, under the Trust Principles, is committed to integrity, independence, and freedom from bias.
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