By Samuel Indyk
LONDON (Reuters) – The dollar rose on Tuesday as worries about earnings and the outlook for the global economy deepened, which knocked the euro back from close to a 10-month high.
The was last up around 0.2% at 101.37, having dropped over 3.3% since the beginning of March.
News on Monday of plunging deposits at First Republic Bank (NYSE:) served as a reminder that stability risks have not entirely died down, while UBS reported a 52% slide in quarterly income.
Central banks around the world, however, are to cut the frequency of their dollar liquidity operations with the U.S. Federal Reserve from May, another sign that March’s financial market volatility is essentially over.
Still, safe haven currencies – such as Japan’s yen – firmed, even as the Bank of Japan’s (BOJ) new governor Kazuo Ueda signalled he was not in a hurry to shift policy. This week’s BOJ meeting, which concludes on Friday, is his first in charge.
“You need to respect the guidance that Ueda is giving, that we won’t see any changes on Friday. But I think tightening will come from the BOJ, maybe in June or July, because inflation is well above target,” said Jens Nærvig Pedersen, director, FX and rates strategy, at Danske Bank.
“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.
The yen rose 0.3% to 133.855 per dollar and was up 0.4% to 147.67 per euro, having earlier touched an eight-year low of 148.635.
Graphic: FX update 2 – https://fingfx.thomsonreuters.com/gfx/mkt/lbpggzbjlpq/Pasted%20image%201682416690202.png
The euro was down around 0.1% against the dollar but still holding above $1.10, having risen 1.7% so far in April and over 4% since the beginning of 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 basis point (bp) rate hike was not off the table and would depend on data – notably inflation figures due two days before May’s meeting.
French ECB policymaker Francois Villeroy de Galhau seemed to have a different view, calling for further hikes to be limited in number and size in an interview with Le Figaro, but markets have focused on the fact that still more hikes are expected.
Futures pricing implies about a 2/3 chance of a 25 bp ECB hike and a 1/3 chance of a larger 50 bp rise.
The Swiss franc was benefitting from its characterisation as a safe haven, rising 0.1% against the stronger dollar.
According to Electronic Broking Services data stretching back to the early 2000s, the Swiss currency also hit its highest against the yen in two decades at 151.36.
Sterling was down 0.1% at $1.2473, but was close to a 10-month high of $1.2545 reached earlier this month.
The Australian dollar was softer at $0.6654 as traders waited for inflation data due on Wednesday, while the was at $0.6152.
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