The dollar is headed for a quarterly loss

The dollar is headed for a second straight quarterly loss as investors see US interest rates heading higher and expect the dollar’s yield advantage to reverse.

As banking volatility weighed on global markets, a slow rise before a rush to safety in mid-March saw the dollar index retreated 1.12% for the quarter.

The euro was up 0.5% overnight after Germany’s bigger-than-expected inflation rate fueled speculation that a few more percentage points remain in the eurozone.

The euro last retreated by 0.22% to $1.0876. The dollar advanced 0.4% against the yen to 133.14 yen.

US interest rate markets have sharply changed their outlook, and now around 40% expect the Federal Reserve to end its rate hike.

Currency market

The dollar will remain constrained until the ramifications become more discernible, but barring a modification in the US exchange rate outlook, it could slide further.

The end of the Fed’s rate hike cycle is closer now, and the dollar remains above its long-term average.

The collapse of SVB three weeks ago stoked wider fears about the banking sector worldwide – prompting Credit Suisse to divest rival UBS and send banking stocks from London to Tokyo.

Currency markets were more stable than stocks and did not reflect the sharp volatility seen in bond trading, although the yen, seen as a haven thanks to Japan’s status as the world’s biggest creditor, advanced 2.6% on the month.

Sterling was near $1.2388 and is on course for a 2.4% quarterly advance as investors expect Britain’s hot inflation will need more rate hikes to retreat.