SINGAPORE The dollar was near seven-week lows on Friday due to nervousness over banks and traders' concerns about the Federal Reserve'sFederal Reserve's chances of a pause to interest rate hikes.
The dollar index, which measures the currency against six major rivals, fell 0.097 per cent at 102.48, just above the seven-week low of 101.91 it touched on Thursday. The index had a small gain on Thursday, its first in six trading days.
The Fed raised interest rates by 25 basis points on Wednesday, but took a cautious stance on the outlook because of the banking sector turmoil, even as Fed Chair Jerome Powell kept the door open on further rate increases if necessary.
Janet Yellen, U.S. Treasury Secretary, reiterated on Thursday that she was prepared to take further action to make sure Americans' bank deposits stay safe, to help investor nerves.
Markets are pricing in a 68 per cent chance that the Fed will be standing pat on interest rates in the next meeting and a 32 per cent chance of another 25 bps hike, according to CME FedWatch.
Banking stocks have been battered in the last two weeks after the failures of two regional U.S. lenders and the sale of embattled Swiss bank Credit Suisse to rival UBS.
Christopher Wong, currency strategist at OCBC, said the FX world seemed to suggest a bout of risk aversion with safe haven proxies, gold and yen outperforming and most other currencies softer.
Price action can swing a lot depending on whether there are any contagion surprises. I think sentiment is still fragile. The yen climbed by 0.51 per cent to 130.16 per dollar after touching a six-week high of 130.055 earlier in the session. Japan's core consumer inflation slowed in February but an index stripping away energy costs hit a four-decade high, according to data released on Friday.
The data will keep market expectations of a near-term tweak to its bond yield control policy, with inflation still exceeding the Bank of Japan's 2 per cent target, according to analysts.
The Bank of England raised interest rates by 25 bps but said a surprise resurgence in inflation would probably fade quickly, stoking speculation that it had ended its hikes.
The pound was flat at $1.2285, after hitting a seven week high of $1.2341 on Thursday in volatile trading. The euro was up 0.03 per cent at $1.0833, just a bit less than the seven-week high of $1.0930 it touched on Thursday.
The flash Purchasing Managers' Index PMI data for March from the Eurozone, Germany, France and the UK will be used to gauge the state of the European economy.
Rodrigo Catril, a senior currency strategist at National Australia Bank, said the market will look at PMI releases around the globe for an update on demand, supply chain disinflation, wages and pricing power.
The Australian dollar went up 0.07 per cent to $0.669, while the kiwi fell 0.14 per cent to $0.624.