By Alun John
LONDON, March 10 (Reuters) - The dollar index was steady
on Friday, a rare spot of calm in volatile global markets ahead
of key U.S. payrolls data later in the day, while the yen
weakened after the Bank of Japan kept stimulus settings steady.
The dollar jumped as much as 0.64% against the yen , a knee-jerk move after the BOJ kept policy unchanged
in Governor Haruhiko Kuroda's last policy meeting before he
steps down in April. It was last up 0.5% at 136.79.
While the "no surprises" decision was expected by most
market watchers, many see the days of the BOJ's bond yield curve
control (YCC) as numbered, which led to some pricing in a slim
chance of a policy tweak at Kuroda's last policy meeting.
There was also plenty happening elsewhere in markets, with
European and Asian banking stocks tumbling a day after U.S. bank
shares plunged as tech-industry lender SVB Financial Group launched a share sale to shore up its balance sheet due
to declining deposits from startups struggling for funding.
Some investors feared it could point to broader stress in
the U.S. banking system, and also drove U.S. and European
government bond yields down sharply. The dollar's safe-haven status helped it remain steady
despite the lower U.S. yields, with the dollar index little
changed at 105.17, as the index's biggest component, the euro,
was also flat at $1.0587. "(The developments in the banking system) and today's U.S.
February jobs release are creating dangerous cross-currents for
FX markets," said Chris Turner, regional head of research for UK
and central and eastern Europe at ING.
"The first impact seems quite clear – the news has
encouraged deleveraging of open FX positions. Hence the two
darlings among the FX investment community this year – the
Mexican peso and the Hungarian forint – have led losses in the
EMFX space at -2.2% and -0.8% respectively."
"The G10 FX performance has been more mixed, but makes some
sense too. Modest losses have been seen among the higher-beta
currencies, such as the Canadian dollar and Norwegian krone. The
outperformer has been the Swiss franc against the dollar,"
Turner added.
The U.S. dollar hit a five-month high on both the Canadian
dollar of C$1.386 and the Norwegian crown of 10.75
crowns. The dollar dipped as much as 0.57% against the Swiss franc
to 0.927, its lowest in more than two weeks, having fallen 0.92%
a day earlier. Also helping the franc to strengthen, Deutsche Bank analysts
said on Friday: "if you think Fed Fund pricing is very close to
or has already peaked, selling USDCHF is one of the best
expressions in FX."
The other mover was sterling , which gained around
0.5% on both the dollar and the euro after Britain's economy was
shown to have grown by more than expected in January, further
allaying fears of a recession. PAYROLLS EYED
The focus now turns to the closely watched nonfarm payrolls
report later on Friday, the next major data point that could
offer clues on the Fed's next steps for monetary policy.
What impact the turmoil in the banking sector will have on
the Fed remains to be seen.
According to a Reuters survey of economists, nonfarm
payrolls likely increased by 205,000 jobs in February after
surging by 517,000 in January.
Data on Thursday showed that the number of Americans filing
new claims for unemployment benefits had increased by the most
in five months last week. That caused the greenback to pause its
sharp rally as traders unwound some bets that U.S. rates would
rise much higher than previously expected.
Futures pricing now implies a roughly 52% chance that the
Fed will raise rates by 50 basis points this month, compared
with 70% before the data release, according to CME's Fedwatch
tool.
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(Reporting by Rae Wee and Alun John; Editing by Bradley
Perrett, Kim Coghill and Shounak Dasgupta)
