Foreign exchange trading reminder: Why did the safe-haven yen sell off after plunging nearly 200 points overnight?

The dollar rallied against most major currencies on Wednesday, reversing some of its recent losses, as concerns about the banking sector eased and the safe-haven yen sold off. The dollar rallied nearly 200 points against the yen on Wednesday to around 132.84, which was volatile at the end of Japan's financial year.

On Thursday (March 30), the dollar index was in a narrow range at the beginning of the Asian market, and is currently trading around 102.62. The dollar rose against most major currencies on Wednesday, reversing some of its recent losses, as the safe-haven yen was sold off as concerns about the banking sector eased. The dollar rose nearly 200 points against the yen on Wednesday to near 132.84. At the end of Japan's financial year, the yen's movement is volatile.

The dollar index rose 0.21% to close at 102.65 on Wednesday, recovering from a near seven-week low of 101.91 hit last weekend.

Helen Given, a currency trader at Monex USA, said: "The recent failures in the U.S. financial sector seem to have been contained and the bleeding stopped for the time being."

Given said improved risk sentiment and investor hopes that the central bank could once again turn its attention to fighting inflation helped support the dollar.

"While we see some downside for the dollar in the second half, dollar strength looks likely to continue on its current path for the time being," she said.

Global financial marekts have been turned upside down in recent weeks, with investors nervous about the collapse of two U.S. banks and the bailout of Credit Suisse, and the dollar under pressure amid fears that market turmoil could make the Federal Reserve unable to stick to its inflation-fighting rate hikes.

However, investor concerns have eased this week as First Citizens Bank agreed to buy all deposits and loans from the bankrupt Silicon Valley bank, and there have been no more cracks in the global banking industry in recent trading days.

Barr, the Fed's vice-chairperson for supervision, told the Senate finance committee on Tuesday that Silicon Valley's problems were due to "poor" risk management, suggesting it could be an isolated case.

"Vice Chairperson Barr's testimony to Congress yesterday helped provide a small life raft for the dollar, easing concerns that the Fed may not be able to contain the damage of the past few weeks," Given said.

The dollar rallied 1.55% against the yen on Thursday, recording the largest one-day gain since February 3. It once hit a near-one-week high to 132.88 and closed at 132.84. Before the end of the Japanese financial year on Friday, the yen was still volatile.

"There was a fair amount of USD/JPY flow on Wednesday related to the end of the quarter," said Given at Monex USA. "Traders are focusing on real money results, but as global risk sentiment continues to improve, the traditional safe haven looks less attractive."

The Australian dollar fell 0.37% to $0.6682 against the U.S. dollar on Wednesday after data showed inflation slowed to an eight-month low in February, adding to the rationale for the Reserve Bank of Australia to suspend interest rate hikes next week.

The U.S. dollar did not perform well against the Canadian dollar on Wednesday. At one point, it hit a new low of 1.3554 in nearly a month, closing at 1.3557, down about 0.3%, and falling for consecutive trading days. The Bank of Canada said on Wednesday that it is ready to intervene and provide support if the banking system is under severe pressure, but it is not worried about the health of the financial system at all now.

Thursday's key economic data and risk events

institutional perspective

Barclays: Banks will experience a second wave of deposit outflows

Joseph Abate, strategist at Barclays, says the US banking system is set for another wave of outflows of deposits as clients realise that interest rates on money market funds are likely to be higher. In a new report, Mr. Abate says he believes there are two distinct outflows that could put pressure on banks' balance sheets. The first, related to bank solvency concerns following the collapse of Silicon Valley banks, may be coming to an end. However, the event may have alerted the public to the low interest rates currently paid on bank deposits. "The recent turmoil over deposit safety may have awakened depositors and started what we believe will be a second wave of outflows into money market funds. Until this week, depositors seemed to pay little attention to the unsecured risk of having deposits with balances above the deposit insurance cap. They seem to have largely ignored the low interest rates on deposits. "

Moody's: U.S. could exhaust temporary debt measures by mid-August

Mr. Zandi, chief economist at Moody's Analytics, told the House budget committee that the Treasury's "unconventional measures" could be exhausted by mid-August. "As we approach the so-called X-Date in mid-August, there will be increasing stress on the financial system," Mr. Zandi said. "We can see from recent events that the system is very vulnerable at this point in time, given the banking crisis, and adding debt ceiling issues to investors would be particularly inappropriate."

Societe Generale: The Canadian dollar is well-positioned to benefit from easing banking concerns and a peak in Federal Reserve interest rates

No one expects the Bank of Canada to raise interest rates on April 14, with both interest rate differentials and general growth expectations working against the Canadian dollar. The North American banking crisis could spread. However, all of these negatives are known. Going short USD/CAD on this basis would benefit from a gradual easing of concerns about the banking sector, as well as a peak in Federal Reserve interest rates. The last time the speculative market shorted the Canadian dollar this way was in early 2019, when the Federal Reserve had just concluded raising interest rates, and by the end of the year, USD/CAD was back below 1.30.

PwC: Global CEOs' concerns about global economic growth over the next 12 months are at an all-time high

According to the 26th Global CEO Survey China Report released by international accounting firm PwC during the Boao Forum for Asia 2023 Annual Meeting, global CEOs' concerns about global economic growth in the next 12 months have reached an all-time high, with pessimists rising to 73%. Even so, Chinese mainland CEOs are far more optimistic than their global peers, with 42% of Chinese mainland CEOs confident about global economic growth in the coming year.