Asia FX rise as dollar slides

Most Asian currencies climbed on Monday, while the US dollar dropped to near three-week lows following concerns of a banking crisis in the United States. Market expectations for more interest rate hikes by the Federal Reserve this year changed drastically as a result. Additionally, other Asian currencies also advanced, including South Korea’s won, which led gains across the region with a 1.4% increase. The Malaysian ringgit also saw gains across Southeast Asia with an increase of 0.8%.

China’s yuan moved further away from the key 7 level and rose 0.3%. Sentiment towards China was also boosted by the government retaining its key financial officials and the promise of more supportive measures for the economy by top officials. The offshore yuan jumped 0.8%. The Japanese yen jumped 0.6%, while the Indian rupee lagged its peers, keeping to a small range ahead of key consumer price index inflation (CPI) data due later in the day.

The dollar fell sharply against a basket of currencies with the dollar index and dollar index futures falling 0.7% and 0.6%, respectively. Both were close to three-week lows. Additionally, the inversion in the US yield curve lessened after the Fed loosened some borrowing measures for banks over the weekend following the failure of Silicon Valley Bank (NASDAQ:SIVB). The central bank will have an emergency meeting later on Monday.

Goldman Sachs analysts stated that they no longer expect the Fed to hike rates when it meets on March 22 and that the outlook for future rate hikes was now uncertain. Analysts at ING added that turmoil in the US banking sector greatly reduced the chance of a 50 bps hike next week but that a 25 bps raise may still be possible. The U.S. rate hike outlook was also dented by data last week that showed some easing in wage growth.

In conclusion, most Asian currencies rose as the US dollar tumbled to near three-week lows amid concerns of a potential banking crisis in the US. The Chinese yuan rose 0.3% as it moved further away from the key 7 level. Other Asian currencies also advanced, while the dollar fell sharply against a basket of currencies. With the Fed loosening some borrowing measures for banks following the failure of Silicon Valley Bank, market expectations for more interest rate hikes by the Federal Reserve this year changed drastically.