Most Asian currencies experienced a sharp decline on Friday due to a rebound in the dollar following an unexpected interest rate cut by the Swiss National Bank. The dollar surged to a three-week high in Asian trade as traders shifted their focus towards the greenback, largely ignoring signals from the Federal Reserve regarding potential interest rate cuts. Both the euro and yen saw gains in the dollar index, indicating a strong demand for the US currency.
The Swiss National Bank’s decision to cut interest rates unexpectedly made it the first major central bank to do so after a period of hiking rates post-COVID-19. This move positioned the dollar as a high-yielding currency in comparison to others in the interim. The Bank of England’s dovish outlook also contributed to traders favoring the dollar over other currencies, with a positive outlook for the US economy further supporting flows into the greenback. Despite the Federal Reserve’s relative hawkishness compared to other central banks, market expectations are leaning towards benefiting the dollar in the current landscape.
The repercussions of a stronger dollar were especially felt by the Chinese yuan, leading to further pressure on the currency due to expectations of additional interest rate cuts by the People’s Bank of China. Reports of the PBOC selling dollars and buying yuan from the open market to support the currency accentuated the losses in the yuan. Additionally, the Japanese yen remained relatively flat on Friday but continued to nurse significant overnight losses, with the USDJPY pair hovering near its highest level in four months. Other Asian currencies also faced losses on Friday, with the Australian dollar, South Korean won, Singapore dollar, and Indian rupee all experiencing fluctuations against the US dollar.
