The U.S. banking sector’s tumultuous situation caused the dollar crisis in financial markets.
Investors were drawn towards the safe-haven yen due to the banking turmoil that occurred the previous week.
Numerous experts are advocating for a continuation of actions that have led to a decline in the value of the dollar.
Moreover, the expected increase in the Federal Reserve’s balance sheet and the impending decision by the Feds can cause further declines in the USD value.
Experts have also advocated the USD/JPY trade idea as the price of the pair is expected to surpass the 129.00 mark.
Over the past several weeks the JPY has emerged stronger against the USD. As things stand, JPY has risen by 3% against the dollar.
It can be argued that JPY has remained the biggest victor amid the U.S. banking sector crisis and a weak dollar.
The U.S. banking sector crisis was caused by the collapse of Silicon Valley Bank and Signature Bank.
Hence, investors rushed to a haven and started to invest in the JPY and treasuries.
Banking Sector Crisis Means Even Stronger YEN
According to recent reports, the 2-year U.S. Treasury yield experienced a significant decline over the course of three days this week.
This marks the most substantial drop since the infamous Black Monday in October 1987.
As a result, investors flocked toward bonds. Moreover, investors also adjusted their expectations for the Fed’s interest rate increase.
The Federal Reserve, however, initiated a fresh program for providing funding to banks.
According to the new plan created by the Feds, banks can opt for loans using eligible assets as collateral.
The Lending Facility to Be Reconstructed through Fed’s Balance Sheet
The Feds and US financial institutions have allowed the big banks to jump in to give loans to the banks suffering from the recent crisis.
Most notably, the Bank of America and Goldman Sachs are likely to lead the path to recovery. Moreover, Fed officials have also restructured their interest rate hike plan to pamper the dollar.
It has been expected that in the upcoming Federal Reserve’s meeting the officials will propose a 25 bps interest rate hike.
The Fed’s repositioning of its balance sheet and interest rate and USD price decline are signs of trouble for the U.S. economy.
Hence, U.S. officials are taking prompt measures to ensure that the current banking sector crisis should be addressed as soon as possible.
The decision on interest rates by the Federal Reserve next week is unlikely to stop the decline of the dollar. Experts have unanimously said that the U.S. banking sector crisis has weakened the dollar.
Hence, the Feds are not left with any room to keep up their Hawkish policy regarding monetary policy. Moreover, the Fed might give up on further strictness on monetary policy.
The Current Situation is Encouraging for Yen
The current U.S. economic circumstance is favorable for the Yen and the basket of other top currencies.
Over the past couple of months, the Fed’s hawkish policy has given much-needed momentum to the price of the U.S. dollar.
However, the recent dramatic turn in events and the banking sector crisis has brought the price of the dollar down.
Now the macroeconomic indicators are clearly stating the Fed has cut down the increase in the interest rate. A lower interest rate increase will give momentum to the basket of currencies such as the Euro, CAD, Yen, etc.
Over the past few weeks, there has been a shift in investment trends. A large number of investors have invested in JPY and bonds.
As long as the banking sector crisis remains unresolved, JPY will remain the hottest prospect for investors.
In general, the current market situation is not only confusing but also tumultuous from an investors’ perspective.
A large number of investors have decided to pull their investments out of the market. But the JPY emerges as the victor as its price rose by 3% against the U.S. dollar.