Dollar heads for first weekly loss in five, crypto falls

[March 03, 2023]  By Kevin Buckland and Samuel Indyk

LONDON (Reuters) - The U.S. dollar eased from a 2-1/2-month high versus the yen on Friday and looked set for its first weekly loss against major peers since January as traders tried to gauge the path for Federal Reserve policy.

The yen, which is particularly sensitive to U.S.-Japanese long-term interest rate differentials, looked set to halt its six-week losing streak as it gained strength on Friday with 10-year U.S. yields retreating from a nearly four-month high close to 4.1%.

Cryptocurrencies took a beating as the crisis engulfing Silvergate worsened, with industry heavyweights including Coinbase Global and Galaxy Digital dropping the lender as their banking partner.

The dollar index, which measures the currency against the yen, euro and four other major peers, eased 0.25% to 104.7, from as high as 105.36 at the start of the week, which was its strongest level since Jan. 6. Since last Friday, the index has slipped 0.5%.

Taking some steam out of the dollar and the breathless advance in U.S. yields were comments from Fed policymakers, including Atlanta Fed President Raphael Bostic, who said that "slow and steady is going to be the appropriate course of action," despite new labour figures adding to the run of strong data of late.

"Yesterday's Fed speakers – Collins, Waller and Bostic all seemed content with 25bp hikes for now," said Mizuho senior economist Colin Asher in a note.

"Most noted a possible need to push rates higher if the data continue to come in hot – suggesting data dependence," Asher added.

Analysts polled by Reuters said recent dollar strength was temporary, and the currency will weaken over the course of the year amid an improving global economy and expectations the Fed will stop hiking interest rates well ahead of the European Central Bank.

"A lot of the dollar strength seen in February has probably run its course now," said Michael Brown, market analyst at TraderX.

One hundred dollar notes are seen in this photo illustration at a bank in Seoul January 9, 2013. REUTERS/Lee Jae-Won/File Photo

"I wouldn't be surprised to see some consolidation until (Fed Chair) Powell speaks next week and the jobs report on Friday, with the bar for significant further gains in the dollar quite high at this point," Brown added.

The Bank of Japan (BOJ), meanwhile, is expected to start dismantling extraordinary stimulus measures some time after Governor Haruhiko Kuroda retires next month.

Tokyo inflation data for February exceeded the BOJ's target for a ninth month, but the core measure did decelerate from a 42-year high.

The dollar eased 0.54% to 136.02 yen, after climbing to 137.10 overnight, the highest since Dec. 20. For the week, the dollar is down 0.3% versus the yen, but any gain would preserve its win streak since mid-January.

The euro rose 0.16% to $1.0614, after climbing off a nearly two-month low of $1.0533 at the start of the week. Since last Friday, it is up 0.7%.

Sterling added 0.44% to $1.1998, on track for a 0.4% weekly rise, after Britain struck a post-Brexit Northern Ireland trade deal with the European Union, while a survey showed Britain's services sector grew at the fastest pace in eight months in February.

The Aussie strengthened 0.42% to $0.6758, putting it up 0.48% for the week.

Bitcoin slid 4.8% to $22,348, and earlier touched a 2 1/2-week low at $22,000. Ether declined 5% to $1,565 after touching $1,543.60, also a first since mid-February.

(Reporting by Samuel Indyk in London and Kevin Buckland in Tokyo; Editing by Christopher Cushing, Kim Coghill and Louise Heavens)

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