TOKYO Reuters - The safe-haven U.S. dollar was on the back foot after two days of losses as global financial markets regained a measure of stability and hopes that a full-blown banking crisis can be averted.
The dollar index, which tracks the currency against six major peers, was flat in early Asian trading, after drops of 0.3% in each of the past two sessions. The weakness comes despite a rise in the U.S. Treasury yields, which is also the result of ebbing demand for the safest assets.
The yen remained volatile in the run-up to the end of the Japanese fiscal year on Friday. The dollar jumped 0.51% to 131.59 yen, erasing all of the previous day's 0.5% decline, when it uncharacteristically moved in the opposite direction with long-term U.S. Treasury yields.
The 10 year benchmark U.S. yield went up 1 basis point higher to a new one-week peak of 3.579% in Tokyo trading.
The Australian dollar fell by 0.18% to $0.66965 after Australian consumer inflation slowed to an eight month low, adding to the case for a pause next week in the Reserve Bank's rate hiking campaign.
The U.S. currency lost ground as investors took solace in First Citizens BancShares' agreement to buy all of the failed lender's deposits and loans, as well as overnight comments by Michael Barr, the Federal Reserve's vice chairman for supervision, suggesting that SVB's problems are due to terrible risk management, suggesting it could be an isolated case.
The traders are very sensitive to any signs of further cracks in the banking system.
Issues in U.S. banks will be the dominant influence on the USD in the near term, according to Joseph Capurso, a strategist at Commonwealth Bank of Australia, who wrote in a client note, which pointed out the importance of weekly data on money market flows, which will likely highlight the shift of deposits out of small U.S. banks into large banks. There is a downside risk to the USD over the next twenty four hours because of the increase in inflows to money market funds, according to Capurso.
The euro was flat at $1.0845 and the sterling fell 0.06% to $1.2334.
After it fell to around $26,541 on Monday, the world's biggest currency exchange, Binance, had fallen as low as $26,541 after it fell from a nine month high of $29,380 last week.