Dollar slides as Fed rate hike expectations slump on SVB collapse

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NEW YORK/LONDON — The dollar fell on Monday as markets bet the Federal Reserve will

halt or trim its raising interest rates to curb inflation after U.S. authorities moved to limit the fallout from

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the sudden collapse of Silicon Valley Bank.

President Joe Biden said the administration’s swift actions on Sunday to ensure depositors can access their

funds in Silicon Valley Bank (SVB) and Signature Bank should give Americans confidence that the

U.S. banking system was safe.

The Fed on Sunday announced it would make additional funding available through a new Bank Term Funding

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Program, which would offer loans of up to one year to depository institutions, backed by Treasuries and other

assets these institutions hold.

The dollar index, which measures the greenback against six other currencies, fell 0.70% as short-dated

Treasury yields tumbled.

The two-year note’s yield plunged 50.8 basis points to 4.080% in the biggest one-day drop since

the financial crisis of 2008. The note was on track for its biggest three-day decline since the Black Monday

stock market crash of 1987.

“The financial crisis is cutting short monetary tightening. There’s a big shift in rate expectations,” said

Marc Chandler, chief market strategist at Bannockburn Global Forex in New York.

“The market’s already is pricing in a cut again in Q4,” he said.

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Fed funds futures also tumbled, with expectations of the Fed’s terminal rate sliding to 4.05% in December

from above 5% on Friday.

Goldman Sachs, among other big banks, said it no longer expects the Fed to deliver a rate hike at the

end of its two-day policy meeting on March 22.

Barclays said that the latest bout of financial market jitters introduced significant uncertainty

into the market and that policymakers will pause at next week’s meeting.

Futures showed a 32.8% chance of no increase in rates at next week’s meeting, according to CME’s FedWatch

Tool.

“The biggest fear right now is contagion. Contagion is underpinned by fear and panic, and that’s more

difficult to control than providing liquidity and covering depositors,” said Quincy Krosby, chief global

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strategist at LPL Financial in Charlotte, North Carolina.

CPI IN FOCUS

With speculation rampant on how the Fed will handle monetary policy and fight to rein in inflation, the

market focus turns to the release on Tuesday of the consumer price index (CPI) data.

“There’s been a radical change in interest rate expectations and in that scenario the dollar has weakened,”

said Niles Christensen, chief analyst at Nordea.

If concerns over the U.S. banking system are contained and do not spread, “expectations for rate hikes should

be revived quickly,” he said.

Safe-haven currencies, such as the Japanese yen and Swiss franc, benefited from the fallout from SVB.

The Japanese yen strengthened 1.47% at 133.04 per dollar, while the dollar fell 1.23% against the

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Swiss franc at 0.910.

The euro rose 0.96% to $1.0745. Earlier, it hit a near one-month high of $1.0737, ahead of the

European Central Bank’s policy meeting on Thursday.

Expectations call for the ECB to deliver a 50-basis-point hike, Christensen said.

“The question is how hawkish will the ECB be. We think they’ll signal there will be more rate hikes to come,”

he said.

Sterling traded at $1.2166, up 1.15% on the day. The Mexican peso, stronger than the dollar all year,

lost 2.31% versus the greenback at 18.93.

The Australian dollar jumped 1.49% to $0.668, on track for its biggest one-day percentage jump since Feb. 7.

Bitcoin and other cryptocurrency soared as investors breathed a sigh of relief that regulators had

moved to bolster the U.S. banking system. Bitcoin rose 19.74% to $24,061.16.

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Currency bid prices at 1:20PM (1720 GMT)

Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid

Previous Change

Session

Dollar index 103.5100 104.2500 -0.70% 0.019% +104.3900 +103.4900

Euro/Dollar $1.0745 $1.0639 +1.00% +0.28% +$1.0749 +$1.0648

Dollar/Yen 133.0200 135.1000 -1.54% +1.45% +135.0200 +132.2950

Euro/Yen 142.93 143.70 -0.54% +1.87% +144.3800 +141.3800

Dollar/Swiss 0.9100 0.9216 -1.29% -1.61% +0.9201 +0.9073

Sterling/Dollar $1.2166 $1.2036 +1.09% +0.61% +$1.2178 +$1.2040

Dollar/Canadian 1.3714 1.3827 -0.81% +1.22% +1.3823 +1.3678

Aussie/Dollar $0.6675 $0.6582 +1.43% -2.06% +$0.6717 +$0.6587

Euro/Swiss 0.9778 0.9804 -0.27% -1.17% +0.9834 +0.9715

Euro/Sterling 0.8831 0.8845 -0.16% -0.15% +0.8863 +0.8812

NZ Dollar/Dollar $0.6237 $0.6135 +1.67% -1.76% +$0.6264 +$0.6140

Dollar/Norway 10.5460 10.6110 -0.80% +7.25% +10.6930 +10.5140

Euro/Norway 11.3342 11.3199 +0.13% +8.01% +11.4303 +11.2639

Dollar/Sweden 10.5915 10.6973 -0.18% +1.77% +10.7574 +10.5750

Euro/Sweden 11.3826 11.4032 -0.18% +2.09% +11.4816 +11.3400

(Reporting by Herbert Lash, additional reporting by Samuel Indyk in London, Ankur Banerjee in Singapore; Editing

by Jacqueline Wong, Kirsten Donovan, Sharon Singleton, Alex Richardson and Jonathan Oatis)