Singapore, March 23 (BNA): The dollar was pressured near a seven-week low after the US Federal Reserve appeared close to announcing an interest rate hike, which markets believed was over.
The Fed raised its benchmark funds rate by 25 basis points, as expected, but dropped talk of the need for “continued increases” in favor of “some more hikes,” as it watches how wavering confidence in banks affects the economy.
Futures suggest there is an even chance of a hike again, unlike in Europe where markets see another 50 basis points or so, according to Reuters.
The gap sent the euro higher, touching a seven-week high of $1.0912 on Wednesday and coming close to testing it again at $1.0898 in the Asian session.
Sterling also hovered near a seven-week high as British inflation unexpectedly picked up, leaving it at a staggering 10.4% and pressuring the Bank of England to raise rates and appearing to be hawkish at its meeting later in the day.
Markets set a 25 basis point rally from the BoE.
Traders are also anticipating a 50 basis point rally in the Swiss National Bank, which has seen the franc recover from a slide it suffered due to troubles at Credit Suisse that has traders worried.
The shift in Fed tone makes it less likely that markets will return to worrying that strong economic data is pushing interest rates higher, said Brian Dangerfield, NatWest Markets’ head of G10 FX strategy.
“From a foreign exchange perspective, we think this argues for further dollar weakness as the Fed’s cycle ceiling has obviously come down.”
The dollar had earlier found a foothold when US Treasury Secretary Janet Yellen spooked the markets by telling Congress that she had not considered or discussed universal bank deposit insurance.
But that was mostly reflected in Asia.
The Australian and New Zealand dollars rose 0.7% and 0.8% respectively to return to the peaks.
USD/JPY, which closely tracks US yields, fell 0.7% to a six-week low of 130.50.
US Treasury yields for two years fell by 11 basis points, to continue their decline by about 20 basis points.
Financial markets have been rattled by fluctuating confidence in banks globally in the wake of the Silicon Valley bank scramble two weeks ago and the sudden collapse of Credit Suisse.
The focus now on the banking front is mainly on US regional lenders as deposit contagion concern remains high.
Fed Chairman Jerome Powell said deposit inflows have plateaued in the past week, and smaller lenders said they took some comfort from Yellen’s remarks that deposit insurance would be considered if there was a risk of contagion.
Bitcoin fell 3% to $27,360 on Wednesday and held near the level on Thursday after a series of lawsuits from the US Securities and Exchange Commission over cryptocurrency promotion discouraged digital assets.
NAA