By Rae Wee
SINGAPORE, March 21 (Reuters) - The dollar regained some
ground on Tuesday but was pinned near a five-week low as traders
tiptoed back into riskier assets after UBS' state-backed
takeover of Credit Suisse allayed some fears of a widespread,
systemic banking crisis.
Market sentiment remained fragile, however, as investors
struggled to determine the scale of the ramifications from a
sector hit that began with Silicon Valley Bank's collapse,
putting a cap on risk appetite and giving some support to the
safe haven dollar.
Sterling rose 0.02% to $1.2280, while the euro steadied at $1.0722.
The Aussie fell 0.22% to $0.6703.
News of UBS' planned takeover of rival Credit Suisse on
Sunday - a shotgun merger engineered by Swiss authorities - gave
way to a small risk-on rally on Monday, as worries over
market-shaking turmoil across global banks waned.
"Markets remain nervous, but the rapidity of policymakers'
response to the evolving banking sector risks is heartening,"
said Alvin Tan, head of Asia FX strategy at RBC Capital Markets.
In another show of authorities' determination to stem
widespread contagion and to ease market concerns, the Federal
Reserve, in coordination with central banks elsewhere, announced
on Sunday that it would offer daily currency swaps to ensure
banks in Canada, Britain, Japan, Switzerland and the euro zone
would have the dollars needed to operate.
"There has been pretty modest demand for U.S. dollars at the
Fed swap lines, so that is a positive sign in and of itself,"
said Carol Kong, a currency strategist at Commonwealth Bank of
Australia (CBA).
"But there continues to be some signs of stress in funding
markets ... so currencies will continue to be pretty cautious,"
she added.
The dollar slipped 0.12% to 131.15 against the Japanese yen , while the U.S. dollar index , which measures
the greenback against a basket of currencies, fell 0.04% to
103.30.
Lower U.S. rate expectations also added to downward pressure
on the dollar ahead of the Fed's two-day policy meeting
commencing later on Tuesday.
According to the CME FedWatch tool, markets are pricing in a
26.2% chance that the Fed will stand pat when it announces its
monetary policy decision on Wednesday, with a 73.8% chance of a
25 basis point rate hike.
"Given all the market turbulence and concerns around the
global financial system, I think it will be important for Fed
Chair (Jerome) Powell to give reassurance to market participants
that the U.S. financial system, at least, is very resilient and
robust," CBA's Kong said.
Elsewhere, the kiwi slid 0.16% to $0.6237. The
Reserve Bank of New Zealand said on Tuesday it saw no immediate
need to request the reinstatement of a U.S. dollar swap line
that expired in 2021.
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(Reporting by Rae Wee; Editing by Jamie Freed)
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