The dollar fell to a multi-week low on Tuesday as fears of a wider systemic crisis following the collapse of a US technology-focused lender led traders to speculate that the Federal Reserve may pause its aggressive rate-hike cycle.
Market jitters continued to set the tone for a second straight day of trading after Silicon Valley Bank (SVB) and Signature Bank suddenly fell, despite US President Joe Biden promising action to keep American banking safe on Monday. system.
Over the weekend, the US authorities began urgent measures to strengthen bank confidence.
The decline sent traders cutting back on their bets that the Fed would continue raising interest rates, sending Fed funds futures soaring and the U.S. dollar falling.
The US dollar suffered heavy losses from the previous session in early Asian trade and fell 1.4% on Monday to trade slightly higher at 133.42 against the Japanese yen.
Similarly, sterling fell 0.19% to $1.2159, although it remained close to its one-month high of $1.2200 hit in the previous session. The euro fell 0.09% to $1.0719, but was not far from Monday’s one-month high of $1.07485.
SVB’s collapse – the biggest bank failure since the 2008 financial crisis – highlighted rifts among key players in one of the Fed’s rate hikes, from zero percent a year ago to more than 4.5 percent today. the largest and most interconnected banking sectors in the world.
“When the SVB crisis … raises interest rates significantly, you usually know there are a few people swimming in the water,” said Rodrigo Catril, senior currency strategist at National Australia Bank.
“And this argument applies not only to the US, but also to the whole world … Despite the fact that the US authorities have guaranteed that depositors will be fine, investors do not know whether they exist. Okay, so they run for the door.”
Market pricing now suggests a 31% chance the Fed will keep rates on hold at its policy meeting next week, with rate cuts expected at the start of June and through the end of the year.
Fed rate hikes and anticipation of how high US rates will go have been a big driver of the dollar’s rise.
Against a basket of currencies, the U.S. dollar index was up 0.09% at 103.77 after slipping 0.9% to a one-month low of 103.47 on Monday.
The Aussie fell 0.29% to $0.6648, recovering some of the previous session’s 1.3% jump, while the Kiwi fell 0.18%, up 1.4% on Monday. reached $0.6209.
A key U.S. inflation report is due on Tuesday, adding to the debate over whether the Fed should stay on track to raise rates to combat persistent price pressures or hold off on further monetary tightening to provide some relief to the banking system. breathing space.
Analysts at Goldman Sachs said on Sunday they no longer expect the Fed to raise rates at its March 22 meeting due to the latest turmoil.
“Instead of continuing monetary tightening … the Fed has left itself in a dire position,” said Eric Vanraes, portfolio manager at Eric Sturdza Investments. “There is a high probability that there will be no increase in Fed funds by 50 basis points on March 22.
“In the longer term, the turmoil in the U.S. banking system in recent days should undo the Fed’s tight monetary policy, which has focused on large rate hikes.”
(Reporting by Ray Wee; Editing by Stephen Coates)
(Except for the headline, this story was not edited by NDTV staff and was published on a syndicated channel.)
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Nirmala Sitharaman, the US Treasury Secretary met in Bengaluru ahead of the G20 meeting