Economic news

Dollar Slides on Likely Rate Pause in Wake of SVB Collapse

SINGAPORE, March 13 (Reuters) - The dollar fell sharply on Monday on heightened expectations 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.

The U.S. government announced several measures early during the Asian trading day, saying all SVB customers will have access to their deposits starting on Monday.

The authorities also said depositors of New York's Signature Bank, which was closed Sunday by the New York state financial regulator, would be made whole at no loss to the taxpayer.

The Fed announced it would make additional funding available through a new Bank Term Funding Program, which would offer loans up to one year to depository institutions, backed by Treasuries and other assets these institutions hold.

The market turmoil from the SVB collapse led investors to speculate the Fed will no longer raise interest rates by a super-sized 50 basis points this month. Investor focus will now be on Tuesday's inflation data to gauge how hawkish the Fed is likely to be.

The dollar index , which measures the U.S. currency against six rivals, slipped 0.55% to near one-month lows of 103.67 after Goldman Sachs said it no longer expects the Fed to deliver a rate hike at its March 22 meeting. The index was last at 103.85.

"From the perspective of the FOMC, their concern is still inflation and inflation has not really decelerated," said Carol Kong, currency strategist at Commonwealth Bank Of Australia, adding that Tuesday's CPI will continue to show that inflation remains persistently high.

"Given what's happened in the U.S. financial system, a 25 basis point hike is more likely than a 50 basis point hike."

The market is now pricing a nearly 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 a 70% chance of a 50 basis point hike before the SVB collapse.

"Terminal rate expectations should remain below the peaks reached during Powell's testimony last Tuesday, with a more cautious approach likely in the aftermath of this meltdown," said Karl Schamotta, chief market strategist at Corpay.

"The episode will contribute to higher levels of background volatility, with investors watching warily for other cracks to emerge as the Fed's policy tightening continues."

Meanwhile, the Japanese yen strengthened 0.61% versus the U.S. dollar to 134.18 per dollar, having touched a one-month high of 133.58 earlier in the session.

The euro was up 0.72% at $1.072, hovering near the one-month high of $1.0737 it scaled earlier. Sterling was last trading at $1.2114, up 0.71% on the day.

The Australian dollar surged 1.31% to $0.666, and was on track for its biggest one-day percentage jump since Jan. 6. The kiwi gained 1% at $0.620.

Bitcoin and other cryptocurrencies rallied, with bitcoin last 11.74% higher at $22,454.09. Ethereum , was last up 12.48% at $1,604.10.

The two-year U.S. Treasury yield, which typically moves in step with interest rate expectations, was down 14.9 basis points at 4.439%, its biggest three-day decline since Black Monday in 1987.

Reporting by Ankur Banerjee in Singapore; Editing by Stephen Coates and Jacqueline Wong

Source: Reuters

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