The dollar falls as the US enters the SVB collapse

SINGAPORE (Reuters) – The US dollar fell sharply on Monday as authorities stepped in to limit the fallout from the sudden collapse of Silicon Valley Bank (SIVB.O), as investors hoped the Federal Reserve would take a less aggressive monetary path. .

The US government announced several measures early Monday, during Asian business hours, and said that all SVB clients will have access to their deposits starting Monday. Officials also said that depositors at Signature Bank of New York (SBNY.O), which New York state financial regulator closed on Sunday, will also be at no loss to taxpayers.

The Fed also announced that it will provide additional funding through a new Bank Term Funding Program, which will provide loans of up to one year to depository institutions, backed by Treasury bills and other assets held by these institutions.

The dollar index, which measures the greenback against six rivals, was down 0.528% at 103.69, its lowest level in nearly a month after Goldman Sachs said it no longer expected the Fed to raise interest rates at its March 22 meeting. It was previously expected to raise 25 basis points.

The collapse of the SVB has investors speculating that the Federal Reserve may now hesitate to raise interest rates by a hefty 50 basis points this month. Investors’ focus will now be on Tuesday’s inflation data to gauge how optimistic the Fed is likely to be.

“From the FOMC’s point of view, their concern remains inflation and inflation hasn’t really slowed,” said Carol Kong, currency analyst at the Commonwealth Bank of Australia, adding that Tuesday’s CPI will continue to show that inflation remains persistently high.

“Looking at what happened in the US financial system, a 25 basis point increase is likely to increase by 50 basis points.”

The market is now pricing in approximately an 18% chance of the Fed sticking to its current rate and an 82% chance of a 25 basis point hike. In contrast, the market was pricing in a 70% chance of a 50 basis point hike before SVB collapsed.

“Final rate expectations should remain below the peaks reached during Powell’s testimony last Tuesday, with a more cautious approach in the wake of this crash,” said Carl Chamota, chief market strategist at Corpay.

“The episode will contribute to higher levels of background volatility, as investors watch warily for further cracks to emerge as the Fed continues to tighten policy.”

Meanwhile, the Japanese yen rose 0.95% to 133.71 per dollar, after touching a one-month high of 133.58 earlier in the session.

The euro rose 0.86% to $1.0731, hovering near the one-month high of $1.0737 hit earlier. The British pound was trading at $1.2139, up 0.92% on the day.

The Australian dollar rose 1.41% to $0.667 and was on track for its biggest one-day percentage jump since January 6th The New Zealand dollar rose 1% to $0.620.

Bitcoin and other cryptocurrencies are higher, with bitcoin up 11.5% to $22,406.70. Ethereum, up last 11.75% to $1,593.70.

The two-year US Treasury yield, which is usually in line with interest rate expectations, fell 20.3 basis points to 4.385%, its biggest drop in three days since Black Monday in 1987.

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Reporting by Ankur Banerjee in Singapore; Editing by Stephen Coates

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