The Safe-Haven Yen Regains Strength as Concerns About Bank Contagion Grow
The safe-haven yen recovered from early severe drops, but the risk-sensitive Australian and New Zealand currencies lost ground as early optimism about global regulators' attempts to limit a financial crisis faded.
Japan's yen, which is particularly sensitive to long-term Treasury rates, recovered from losses as high as 0.6% to the last be level versus the dollar after the 10-year yield in the United States fell dramatically ahead of the start of European trade, erasing an earlier 12-basis-point spike.
The Australian dollar, which had risen by 0.7% to a nearly two-week high of $0.6743, was last 0.2% weaker at $0.6683, falling below the carefully monitored $0.67 barrier. The New Zealand kiwi traded 0.3% weaker at $0.6250, giving up a 0.3% gain earlier.
The Federal Reserve, European Central Bank, Bank of England, Swiss National Bank, Bank of Canada, and Bank of Japan announced a concerted operation to improve market liquidity over the weekend. This came after Swiss authorities negotiated a takeover of Credit Suisse by UBS at a significant discount and with a $17 billion debt writedown.
"Risk aversion is the market's driving factor," said Takahiro Sekido, chief Japan strategist at MUFG. "I'm not that gloomy, but we have to wait and see how much risk contagion from Europe we will see," he added. "I expect the yen to remain high at least this week."
The yen recently traded at 131.79 per dollar, maintaining its 2.5% rise from the previous week. The euro was roughly steady at $1.0671, while the sterling was little changed at $1.2189, erasing previous slight gains.
The Fed's rate decision on Wednesday adds another layer of uncertainty. Traders believe a quarter-point increase is still inevitable, but they are now expecting rates to peak in May at roughly 4.8%, followed by a steady succession of decreases until the end of the year.
The US dollar index, which measures the currency against six major peers, including the yen and euro, was flat at 103.80, stabilizing after a 0.7% drop last week.
"Almost regardless of the Fed this week, (it's) difficult to see risk markets swiftly rowing away from banking sector concerns, leaving USD not far from a safety bid," National Australia Bank's head of foreign-exchange strategy, Ray Attrill, wrote in a note to clients.
Bitcoin paused after reaching a nine-month high of $28,474 on Sunday and was last trading 1.5% down at approximately $27,629. Gold remained unchanged at $1,989 per ounce, having recovered from a 1% drop.