Investors remained concerned over the fate of the banking
sector after U.S. lender First Republic shares tumbled nearly
50% on Monday on fears it will need a second rescue. But
European banks rallied on Tuesday for a second consecutive day
eased some of those fears following UBS Group's state-backed
takeover of Credit Suisse.
The focus has moved to central banks meetings due this week.
Markets are pricing in a 25% chance that the Fed will stand
pat when it announces its monetary policy decision on Wednesday,
with a 75% chance of a 25 basis point rate hike, according to
the CME FedWatch tool.
"Volatility in rates and the broader asset markets has been
extraordinary recently," said John Velis, FX and macro
strategist for the Americas at BNY Mellon.
"That has clouded the picture for the March (Fed) meeting
and beyond. One consequence has been a substantial repricing ...
regarding future rate expectations," he said, with the peak
seen at 5.5% only a few weeks ago, against about 4.8% now.
The dollar has followed those expectations lower, though
general nervousness in financial markets has tempered selling.
The greenback ticked about 0.1% higher to $1.0729 per euro , while the dollar index , which measures the
U.S. currency against six peers, flattened at 103.36.
With UK inflation data on Wednesday expected to show some
easing and amid the global financial market instability, money
markets are now pricing in a 50% chance of no interest rate hike
by the BoE on Thursday and the same chance of a 25 basis-point
increase. Sterling fell 0.35% to $1.2234.
Data showed that Britain recorded a budget deficit of 16.68
billion pounds ($20.4 billion) in February, much higher than
expected by a Reuters poll of economists.
The Norwegian crown rose 0.35% to 10.6120 per
dollar, after falling last week to its lowest level since early
October. Norway's central bank is expected to raise its
benchmark interest rate by 25 bps to 3% this week to curb
inflation and prop up a weakening currency, according to a
Reuters poll.
On Tuesday, minutes showing Australia's central bank had
agreed on March 7 to consider the case for a rate pause at its
April policy meeting, even before the recent bout of volatility
weighed on the Aussie which dropped 0.55% to $0.6681.
SENTIMENT FRAGILE
Sentiment remained fragile, as investors grapple with bank
stress that has mushroomed from weakness in regional U.S. banks
to the humbling of a global lender in a matter of days.
"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.
On Sunday the Federal Reserve, in coordination with central
banks elsewhere, announced it would offer daily currency swaps
to ensure there would be plenty of U.S. dollars to go around.
A top European Union securities regulator said on Tuesday
that reforms to tackle vulnerabilities in money market funds
were urgently needed for the sector to cope better with economic
shocks.
The approval of International Monetary Fund financing for Sri Lanka sent the beaten-down Sri Lankan rupee about 5% higher against the dollar. The dollar rose 0.66% against the yen to 132.18 after recording on Friday its biggest daily fall against the Japanese currency in more than two months.
<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ World FX rates ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^> (Reporting by Joice Alves and Rae Wee; Editing by Christina Fincher)
