By Tom Westbrook
SINGAPORE, March 31 (Reuters) - The dollar tracked
toward a second consecutive quarterly loss on Friday, as
investors see U.S. interest rates close to peaking and expect
the dollar's yield advantage is in decline.
A modest boost from a rush to safety around mid-March as
banking jitters hit global markets seems to be fading, and the
dollar index is down 1.3% for the quarter.
Moves in the Asia session on Friday were modest, as a tense
calm settled on traders, who still have an eye on the prospect
of further deposit flight at U.S. regional banks.
The euro rose 0.5% overnight after
stronger-than-expected German inflation figures reinforced
expectations that there are a few more rate increases left in
the Euro zone.
The euro was last a fraction firmer in Asia at $1.0908. The
dollar drifted 0.2% higher on the yen to 133.07 yen.
Through March, U.S. interest rate markets dramatically
repriced the outlook and now see a roughly 40% chance that the
Federal Reserve is finished with rate increases. Fed funds
futures have priced rate cuts by year's end. "The dollar is likely to be range-bound until the impact is
a little clearer but if the re-pricing of the outlook for U.S.
rates sticks, it’s got a fair bit further to fall," Societe
Generale analysts said in a note.
"The saga must have an impact on both credit demand and
supply and unless economic data recover very quickly, the end of
the Fed rate-hiking cycle is surely much closer now, and the
dollar remains way above long-term average levels in real
terms," they said, in reference to recent banking turmoil.
The collapse of Silicon Valley Bank three weeks ago
unleashed broader worries about banking confidence around the
world - forcing Credit Suisse into the arms of rival UBS and
sending bank shares sliding from London to Tokyo.
Currency markets were in general steadier than stocks and
did not reflect the wild volatility seen in bond trade, though
the yen - seen as a safe haven thanks to Japan's status as the
world's biggest creditor - is up 2.5% for the month, its best
March performance since 2008.
Central bank meetings loom in Australia and New Zealand next
week, and markets have priced a pause for Australia and
step-down in pace to a 25 basis point hike for New Zealand. On Friday the New Zealand dollar broke above its
50-day moving average and stood at a nearly two-week high of
$0.6296. It is about 1% lower for the quarter. The Australian dollar nudged 0.2% higher to $0.6721
and is close to testing its 200-day moving average. It is also
about 1.3% lower on the quarter.
Both currencies found support from expanding Chinese
manufacturing activity, though data on Friday showed the pace
was slowing down. China's yuan jumped about 0.3%.
Sterling rose 0.1% to $1.2400 on Friday and is
eyeing a quarterly gain of 2.5% as investors reckon scorching
hot British inflation will require more rate rises to tame.
Euro zone inflation data and U.S. core personal consumption
expenditure - the Fed's preferred inflation gauge - are due
later in the day.
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(Reporting by Tom Westbrook. Editing by Gerry Doyle)
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