Dollar slides on likely rate pause in wake of SVB collapse

Singapore, March 13 (BNA): The dollar fell sharply amid growing expectations that the Federal Reserve will take a less aggressive monetary path as authorities stepped in to limit the fallout from the sudden collapse of Silicon Valley Bank (SIVB.O).

The US government announced several measures early in the Asian session, saying that all SVB clients will have access to their deposits starting Monday, as reported by Reuters.

Authorities also said depositors at Signature Bank of New York (SBNY.O), which New York state financial regulator closed on Sunday, will be compensated at no taxpayer loss.

The Fed announced that it will provide additional funding through a new Bank Term Funding Program, which will provide loans of up to one year to depository institutions, backed by Treasury bills and other assets held by these institutions.

The market turmoil from the SVB crash has investors speculating that the Fed will not raise interest rates by 50 basis points this month.

Investors’ focus will now be on Tuesday’s inflation data to gauge how optimistic the Fed is likely to be.

The dollar index, which measures the greenback against six rivals, fell 0.55% to near a one-month low of 103.67 after Goldman Sachs said it no longer expected the Federal Reserve to raise interest rates at its March 22 meeting.

The index was most recently at 103.85.

Looking at what has happened in the US financial system, a 25 basis point increase is likely to be a 50 basis point increase.

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The market is now pricing in approximately an 18% chance of the Fed sticking to its current rate and an 82% chance of a 25 basis point hike.

In contrast, the market was pricing in a 70% chance of a 50 basis point hike before SVB collapsed.

Final interest rate expectations should remain below peaks reached during Powell’s testimony last Tuesday, said Carl Chamota, chief market strategist at Corpay, with a more cautious approach in the aftermath of the crash.

“The episode will contribute to higher levels of background volatility, as investors watch warily for further cracks to emerge as the Fed continues to tighten policy.”

Meanwhile, the Japanese yen rose 0.61% against the US dollar to 134.18 per dollar, after touching a one-month high of 133.58 earlier in the session.

The euro rose 0.72% to $1.072, hovering near the one-month high of $1.0737 hit earlier.

The British pound was last trading at $1.2114, up 0.71% on the day.

The Australian dollar rose 1.31 percent to $ 0.666, and is on its way to achieving the largest one-day percentage jump since January 6. The New Zealand dollar rose 1 percent to $0.620.

Bitcoin and other cryptocurrencies were higher, with bitcoin rising 11.74% to $22,454.09.

Ethereum, which was last up 12.48% at $1,604.10.

The two-year US Treasury yield, which is usually in line with interest rate expectations, fell 14.9 basis points at 4.439%, its biggest drop in three days since Black Monday in 1987.

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