Asia FX sinks as dollar surges to 3-week high after SNB rate cut

investing.com:

Investing.com-- Most Asian currencies fell sharply on Friday, coming under pressure from a rebound in the dollar as an unexpected interest rate cut by the Swiss National Bank pushed currency traders squarely into the greenback.  

The dollar surged to a three-week high in Asian trade, extending a strong rebound from Thursday as the SNB rate cut saw traders largely look past signals on interest rate cuts from the Federal Reserve.

The dollar index and dollar index futures rose 0.8% and 0.2%, respectively in Asian trade on Thursday. Outsized gains in the dollar index signaled more immediate demand for the greenback.

Both dollar indicators surged on Thursday after the SNB unexpectedly cut interest rates, becoming the first major central bank to do so after an extended hiking cycle in the wake of the COVID-19 pandemic. 

This left the dollar as the only low-risk, high-yielding currency in the interim. The greenback also benefited from a dovish outlook from the Bank of England on Thursday, which saw traders dump the pound in favor of the dollar. 

A positive outlook for the U.S. economy also favored flows into the dollar. The Fed sharply upgraded its outlook for growth in 2024.

While the central bank is still expected to begin cutting interest rates by June, its relative hawkishness, in comparison to other central banks, is expected to benefit the dollar. 

The Chinese yuan was among the worst hit by a stronger dollar, with the possibility of more interest rate cuts by the People’s Bank of China also adding to pressure.

The USDCNY pair shot up 0.4% on Friday, crossing the 7.2 level for the first time since November 2023. Reports said that the PBOC was selling dollars and buying yuan from the open market to support the Chinese