Dollar Weakens as Risk Appetite Improves with Bank Rescues

The dollar fell on Friday as risk appetite improved following moves by authorities and banks in major markets to ease pressure on the financial system, leading to a calming of other major currencies that had declined earlier in the week amid banking turmoil.

Yesterday, major US banks injected $30 billion in the form of deposits into First Republic Bank to rescue it after it got stuck in the crisis resulting from the collapse of two other medium-sized US banks last week.

On Friday, there was a cautious calm in all markets, which allowed for sensitive currencies such as the Australian and New Zealand dollars to rise.

They emerged as some of the biggest gainers in Asian trading.

The Australian dollar rose by 0.4% to reach 0.6684 US dollars, and the New Zealand dollar also saw a rise of 0.3%, reaching 0.62145 US dollars.

The $30 billion rescue package in the United States followed an announcement by Credit Suisse earlier yesterday Thursday that it would borrow up to $54 billion from the Swiss National Bank after being affected by the collapse of Silicon Valley Bank.

However, despite a 30% decrease in shares of the Swiss lender, concerns about the strength of European banks were raised. The European Central Bank went ahead and raised interest rates by 50 basis points at its policy meeting yesterday, Thursday.

The Euro had little reaction to the decision, but still managed to achieve gains of 0.3% on Thursday. In the latest transactions, it rose by 0.14% to reach 1.0625 dollars.

According to Nick Penningbrook, an economic expert at Wells Fargo in Wales, the banking sector in the Eurozone is still reasonably robust.

If market tensions ease and volatility subsides in the coming weeks and months, then continuous inflation should be sufficient in our opinion to push the European Central Bank toward further tightening.

On the other hand, the British pound rose by 0.15% to reach $1.2128.

The Swiss Franc increased by 0.1% after experiencing a significant drop earlier in the week, it’s largest one-day decline against the dollar since 2015.

The Japanese yen remained strong, recording an increase of approximately 0.3% to 133.30 against the US dollar in the latest trading sessions.

The weak morale in the market had led traders to favor the yen, which is generally considered a safer bet during times of turmoil, amid fears that the recent pressures that have been revealed among banks in the United States and Europe are just the first stage of a widespread crisis.

Next week, the meeting for monetary policy will be in the spotlight for the Federal Reserve (the central bank of America). Some investors hope that the bank will slow down their aggressive campaign of raising interest rates to ease pressure on the financial sector.

Philip Mary, the chief strategic analyst at Rabobank, mentioned that the disruption in the banking sector is complicating Federal Reserve’s policy expectations.