Dollar declines in early trade

14 Mar 2023 , 09:04 AM

On Tuesday, the dollar remained close to a multi-week low as traders conjectured that the Federal Reserve could halt its aggressive rate-hiking cycle due to concerns of a wider systemic crisis resulting from the failure of a U.S. lender with a concentration on technology.

The abrupt failure of Silicon Valley Bank (SVB) and Signature Bank continued to cause market worries for a second consecutive trading day, despite U.S. President Joe Biden’s Monday pledge to take measures to protect the security of the country’s financial system.

U.S. officials started taking emergency action over the weekend to support banking trust.

The aftermath caused traders to reduce their wagers on how far the Fed would raise interest rates, which in turn caused a dramatic rebound in Fed funds futures and sent the value of the US dollar plummeting.

In early Asian trading, the dollar was still suffering severe losses from the previous session. It last traded slightly higher against the Japanese yen at 133.42 after falling 1.4% on Monday.

Parallel to this, sterling fell 0.19% to $1.2159, but it still trades close to the $1.2200 one-month high it reached in the previous session. Although the euro dropped 0.09% to $1.0719, it was still close to Monday’s one-month high of $1.07485.

The collapse of SVB, the largest bank failure since the 2008 financial crisis, has brought to light whether key players within one of the biggest and most intricately intertwined banking sectors in the world had developed weaknesses as a result of the Fed’s rate increases, which brought rates from almost zero percent a year ago to over 4.5% at the moment.

The dollar’s increase has been greatly fueled by the Fed’s rate hikes and anticipation of how much higher U.S. rates will rise.

The U.S. dollar index increased 0.09% to 103.77 as measured against a basket of currencies, after falling 0.9% on Monday and reaching a one-month low of 103.47.

The Australian dollar dropped 0.29% to $0.6648, reversing some of its 1.3% gain from the previous day, and the New Zealand dollar slipped 0.18% to $0.6209 after also rising 1.4% on Monday.

Later on Tuesday, a significant U.S. inflation report is due, which might add to the Fed’s uncertainty about whether it should continue raising rates to contain persistent price pressures or hold off to allow the banking system some breathing room.

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