The Fed on Sunday announced it would make additional funding available through a new Bank Term Funding 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. 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 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 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.
======================================================== 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
<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ World FX rates ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^> (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)
