Dollar rises in early trade

21 Mar 2023 , 08:54 AM

As UBS’ state-backed acquisition of Credit Suisse allayed some concerns about a wider, systemic banking crisis on Tuesday, the dollar gained some ground but was locked near a five-week low as traders cautiously moved back into riskier assets.

Yet, investor uncertainty over the scope of the effects of a sector hit that started with Silicon Valley Bank’s failure kept market sentiment fragile, capping risk appetite and supporting the safe-haven currency to some extent.

The euro held steady at $1.0722 while sterling increased by 0.02% to $1.2280.

Australian dollars dropped 0.22% to $0.6703.

When concerns over market-shaking turbulence across international banks subsided, news of UBS’ proposed acquisition of competitor Credit Suisse on Sunday—a shotgun merger brokered by Swiss authorities—led to a brief risk-on surge on Monday.

In terms of the Japanese yen, the dollar decreased by 0.12% to 131.15; meanwhile, the U.S. dollar index, which gauges the value of the dollar against a basket of currencies, decreased by 0.04% to 103.30.

In the lead up to the Fed’s two-day policy meeting, which starts later on Tuesday, lower U.S. rate forecasts also increased downward pressure on the dollar.

Markets are pricing in a 26.2% likelihood that the Fed will hold steady when it delivers its monetary policy decision on Wednesday, with a 73.8% chance of a 25 basis point rate hike, according to the CME FedWatch tool.

The kiwi fell 0.16% to $0.6237 in other markets. The Reserve Bank of New Zealand declared on Tuesday that it did not see a need to ask for the renewal of a US dollar swap line that was set to expire in 2021.

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