March 24 (Reuters) – The dollar and yen rose against the euro and most major currencies on Friday in a pre-weekend climax of risk-off flows tied to global banking stress and tightening central banks.
USD/JPY enjoyed a late rebound after stocks and Treasury yields recovered from early losses.
EUR/USD was down 0.66% in afternoon trading, with its recovery from Friday’s 1.0714 lows on EBS by the 10-day moving average limited by the sharp rebound in Treasury yields.
Selling pressure also persisted as European bank stocks fell far more than those in the US, led by an 8.5% drop in Deutsche Bank and a 2% dip in the Invesco AT1 bond ETF. UBS, amid a government backed rescue of Credit Suisse, fell 3.55%.
The early scramble into safe havens also reflected pre-weekend derisking, which peaked early in the US session and then retreated.
Above-forecast US March PMI readings encouraged the retreat in risk aversion from its extremes, as did comments by St. Louis Federal Reserve president James Bullard, who said he saw an 80% chance of financial stress abating and the discussion shifting back to inflation.
Friday’s three Fed speakers indicated Wednesday’s 25bp rate hike to fight inflation was justified because financial stability was not jeopardized by failures at certain banks that were not relevant to the banking system as a whole.
As it stands, 2-year Treasury yields, which encapsulate the likely path of Fed policy over that period, fell an incredible 153bp from March 8’s closing peak to Friday’s intraday day low, with yields up roughly 20bp from Friday’s lows ahead of the close.
USD/JPY recovered virtually all its early risk-off losses, but a rebound to reset oversold prices and Treasury yields will likely serve up a new selling opportunity.
Sterling fell 0.5%, partly recovering from earlier risk-off losses.
US March ISMs and payrolls data awaited on April 3, 5 and 7.
(Editing by Burton Frierson; Randolph Donney is a Reuters market analyst. The views expressed are his own.)