Risk Sentiment Improves as Banking Crisis Subsides
The US dollar edged higher on Thursday as easing worries about the banking sector lifted sentiment, and investors turned their attention to the Federal Reserve’s fight against inflation.
The dollar index, which measures the exchange rate against six major currencies, rose 0.019% to 102.65 after rising 0.19% yesterday. However, amid market turmoil following problems in the banking industry, the index was on track to fall 2% in March.
“Risk sentiment appears broadly resilient as bank contagion concerns continue to ease and a rally in Chinese equities is attracting some attention,” said Christopher Wong, currency strategist at OCBC in Singapore.
Asian stocks received support from Alibaba this week after the tech giant announced plans to split into six divisions on Tuesday, which investors took as a signal Beijing’s regulatory crackdown on companies is ending.
“Although risk sentiment has held up somewhat this week, we expect monthly flows along with risk-driven flows to boost bilateral trade,” Wong said.
Bank stocks have been hurt by the sudden collapse of two US creditors and the Credit Suisse bailout in recent weeks, and the dollar has come under pressure as the Fed may have to ease its fight against inflation and hold on to rate hikes firmly.
But with no further signs of a crack in the financial sector and regulators taking action, investors’ nerves have calmed for now. Their attention turns back to what the Fed will likely do at its next meeting in May.
According to the CME FedWatch tool, markets estimate a 60% chance the Fed will hold interest rates, while investors anticipate a rate cut by the end of the year.
The data on private consumption expenditure to be released on Friday will provide additional information on inflationary pressures.
“As recession concerns ease, market attention is now shifting to US NPO data due later this week, which is considered the Fed’s preferred measure of inflation,” said Tina Ten, market analyst at CMC.
The euro slipped 0.04% to $1.0839 but was on track to end the month up 2%. Sterling was unchanged at $1.2311 after falling 0.2% on Wednesday. The Japanese yen rose 0.23% to 132.57 per dollar after falling 1.5% yesterday. The currency was volatile ahead of the end of Japan’s fiscal year on Friday. The Australian dollar rose 0.06% to $0.669, while the New Zealand dollar fell 0.10% to $0.622.
The Nasdaq 100 entered a new bull market on Wednesday for the first time in almost three years as traders invest in technology stocks and worries about the recent banking turmoil ease.
The technology indicator rose more than 20% from its closing low on Dec. 28, reflecting a sharp rally in mega-cap companies Apple Inc., Microsoft Corp., and Amazon.com Inc.
After previous failed attempts over the past week and early February, he finally climbed over a key threshold. The Nasdaq 100 last entered a bull market in April 2020 after bouncing sharply off the Covid lows in March 2020. Tech stocks have been the best-performing stocks this year as investors suggest that weaker economic data and recession risk, exacerbated by recent stress in the banking sector, could prompt the Federal Reserve to exit higher interest rates sooner than expected. Investors have also used the sector as a haven amid a sharp financial decline.
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