US dollar, euro steady after strong US bank results

THE US dollar and euro steadied on Thursday (Apr 20) after strong US banking results firmed up expectations that the Federal Reserve (Fed) and the European Central Bank (ECB) will keep raising interest rates.

Morgan Stanley reported first quarter profit on Wednesday that beat expectations, adding to rosy results from major US lenders and calming fears of a widening crisis after the failure of Silicon Valley Bank and Signature Bank and the emergency takeover of Credit Suisse by rival UBS.

The US dollar index, which tracks the greenback against a basket of other major currencies, eased 0.1 per cent to 101.89 after sliding on Friday to its lowest level since early February.

The euro edged up 0.1 per cent to US$1.0964, not far from a one-year high touched last week against the US dollar.

“The banking results continue to show that the US bank funding situation is stabilising,” said Bank of Singapore currency strategist Sim Moh Siong. That has pushed away bets of interest rates cuts, he said.

Comments from Fed and ECB policymakers also supported the euro and the US dollar.

Fed Bank of New York president John Williams said on Wednesday that inflation was still at problematic levels and the US central bank would act to lower it.

The Fed will deliver a final 25-basis-point interest rate increase in May and then hold rates steady for the rest of 2023, according to economists in a Reuters poll.

In the eurozone, ECB policymaker Klaas Knot said inflation is still too high and a “sufficiently restrictive stance” is needed.

The ECB is expected to raise rates for a seventh straight meeting on May 4, with policymakers converging on a 25-bp hike, even if a larger move is not yet off the table.

Traders are anticipating further cues on monetary policy from US manufacturing data on Friday, the Bank of Japan’s meeting next week, and the Fed’s Open Market Committee (FOMC) early next month, Bank of Singapore’s Sim said.

Elsewhere, the kiwi fell 0.4 per cent to US$0.6175 after touching its weakest level since Mar 16 on data showing New Zealand’s consumer price index (CPI) for the first quarter came in below expectations, but remained near historic highs.

That followed hotter than expected CPI figures in Britain that boosted bets for a rate increase from the Bank of England in May.

Sterling was flat at US$1.2430, but not too far from a 10-month high of US$1.2545 touched on Friday.

The Aussie dollar rose 0.12 per cent to US$0.6722 after a review of the Reserve Bank of Australia (RBA) released on Thursday outlined a range of reforms, including a more focused monetary policy mandate.

The Japanese yen flattened to 134.64, after trading above 135 to the US dollar for the first time in a month on Wednesday. REUTERS