By Rae Wee
SINGAPORE, March 14 (Reuters) - The dollar languished
near a multi-week low on Tuesday as fears of a broader systemic
crisis following the collapse of a U.S. tech-focused lender left
traders speculating that the Federal Reserve could pause its
aggressive rate-hiking cycle.
Market jitters continued to set the tone for a second
straight trading day in the wake of the sudden collapse of
Silicon Valley Bank (SVB) and Signature Bank , though
some calm was restored after U.S. President Joe Biden on Monday
vowed to take action to ensure the safety of the banking system.
That gave the U.S. dollar room to nurse deep losses from the
previous session, but it remained pinned near multi-week lows
against major peers in Asia trade.
The greenback rose to an intraday peak of 134.03 yen and was last 0.48% higher at 133.87, reversing some of
Monday's 1.4% slide.
Similarly, the dollar pushed the euro and sterling some
distance away from their one-month highs hit on Monday.
The euro was last 0.27% lower at $1.0700, having
peaked at $1.07485 in the previous session, while the British
pound slid 0.28% to $1.2148, away from Monday's high of
$1.2200.
The collapse of SVB - the largest bank failure since the
2008 financial crisis - has raised questions about whether the
Fed's aggressive rate increases have exposed cracks among key
players within one of the world's largest and most heavily
interconnected banking sectors.
Over the weekend, U.S. authorities launched emergency
measures in response to the debacle, in a bid to shore up
banking confidence.
"The SVB crisis highlights the fact that ... when you lift
interest rates by quite a lot, you usually find out there's a
few people swimming naked," said Rodrigo Catril, senior currency
strategist at National Australia Bank.
"And that argument applies not just to the U.S., but around
the globe ... Regardless of the fact that the authorities in the
U.S. have provided that security assurance that depositors will
be ok, investors don't know if they're going to be ok, and
therefore they're running for the door."
Traders have since scaled back their bets on how much
further the Fed would continue raising interest rates, sparking
a sharp rally in Fed funds futures and sending the U.S.
dollar tumbling.
Market pricing now shows a roughly 35% chance that the Fed
would keep rates on hold at its policy meeting next week, with
rate cuts expected as early as June and through the end of the
year. The Fed's rate hikes and expectations of how much higher
U.S. rates would go have been a huge driver of the dollar's
rally.
Against a basket of currencies, the U.S. dollar index rose 0.21% to 103.90, after sliding 0.9% on Monday and hitting a
one-month low of 103.47.
The Aussie fell 0.23% to $0.6652, reversing some of
its 1.3% jump in the previous session, while the kiwi shed 0.13% to stand at $0.6212, having similarly surged 1.4% on
Monday.
A key U.S. inflation report is due later on Tuesday, which
could add to the Fed's conundrum on whether it should stay on
its rate-hike path to tame persistent price pressures, or to
hold back on tightening monetary policy further to give the
banking system some breathing space.
Goldman Sachs' analysts on Sunday said they no longer expect
the Fed to deliver a rate hike at its March meeting in light of
the recent stress, while Nomura forecast that the
central bank will cut interest rates and hit the brakes on
quantitative tightening.
"Rather than proceeding with more monetary tightening ...
the Fed finds itself in a terrible bind," said Eric Vanraes, a
portfolio manager at Eric Sturdza Investments.
"Longer term, the tremors in the U.S. banking system in
recent days should kill off the Fed's restrictive monetary
policy of large rate hikes."
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(Reporting by Rae Wee; Editing by Stephen Coates and Sam
Holmes)
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