Most Asian currencies rose on Monday as the dollar tumbled to near three-week lows, following a potential banking crisis in the U.S. that led to a change in expectations for further interest rate hikes by the Federal Reserve this year. Regional currencies also reversed losses from the previous week, with China’s yuan up 0.3%, boosted by the government retaining its key financial officials and promises of more supportive measures for the economy from top officials.
The offshore yuan surged 0.8%. Other Asian currencies also advanced, with South Korea’s won leading gains across the region with a 1.4% increase. Meanwhile, the Japanese yen rose 0.6%, while the Malaysian ringgit led gains across Southeast Asia with a 0.8% rise.
The potential banking crisis in the U.S. caused a sharp shift in market sentiment, leading to a drastic change in the outlook for interest rates across the U.S. and Europe. Two-year yields in the U.S. saw their largest decline in any three days since the 1987 market crash.
While a 25 basis point rate hike from the Federal Reserve had been the broad consensus, with 50 basis points seen as the next most likely outcome, most of the market now expects no change. Some analysts have even predicted that the Fed will cut the target range for fed funds by 25 basis points.
The shift in market sentiment has also been reflected in the value of the dollar, which has weakened against most major currencies. The potential banking crisis in the U.S. has raised concerns about the health of the U.S. financial system, leading to a reassessment of the outlook for the U.S. economy and the dollar.
However, some experts have suggested that the impact on the global economy may be limited, and that other factors such as trade tensions and geopolitical risks may continue to have a greater impact on currency markets.