SINGAPORE/LONDON (Reuters) – The Federal Reserve becomes less aggressive on monetary policy as officials intervene to limit the impact of the sudden collapse of Silicon Valley Bank (SIVB.O) The dollar fell on Monday as expectations rose.
The U.S. government announced several measures early in the Asian trading day, saying all SVB customers will be able to access their deposits from Monday.
Officials also said depositors at New York’s Signatory Bank of America (SBNY.O), which was closed Sunday by New York’s financial regulator, will go full without loss to taxpayers.
The Federal Reserve Board (FRB) has announced that it will make additional funding available through its new Bank Term Funding Program. The program provides loans of up to one year to depository institutions, backed by government bonds and other assets held by these institutions.
The market turmoil caused by the SVB collapse has led investors to speculate that the Fed will not raise rates by a mega 50 basis points this month. Tuesday’s inflation data will be the focus to determine how hawkish the Fed may be.
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The dollar index, which measures the U.S. currency against six other currencies, fell about 1 of 103.67 after Goldman Sachs said it no longer expected the Fed to raise rates at its March 22 meeting. It also dropped 0.55% to a monthly low. The index was last at 103.92.
The market is now pricing in a nearly 33% chance that the Fed will keep rates on hold and a 67% chance of a 25 basis point hike. By contrast, the market had priced in a 70% chance of a 50 basis point rate hike before his SVB collapsed.
“There’s been a radical change in interest rate expectations and the dollar has weakened in that scenario,” said Niels Christensen, chief analyst at Nordea.
“The reason for this resetting of rate hike expectations is bank failures.
Meanwhile, the euro rose 0.67% to $1.0704, trading near a one-month high of $1.0737 ahead of Thursday’s European Central Bank policy meeting.
“The ECB is still expected to raise rates by 50 basis points,” Nordea’s Christensen added.
“The question is how hawkish the ECB will be.
Safe haven currencies such as the Japanese Yen and Swiss Franc benefited from the SVB impact.
The yen rose 0.8% to 133.88 to the dollar after reaching a one-month high of 133.58 early in the session.
Sterling closed at $1.2105, up 0.57% on the day.
The Australian dollar rose 1.16% to $0.6659, on track for its biggest one-day percentage gain since 1st February. Kiwi is trading at $0.6195, up 1%.
Two-year US Treasury yields, which typically move in step with interest rate expectations, fell 23 basis points to 4.3575%, the biggest three-day drop since Black Monday in 1987.
Bitcoin and other cryptocurrencies rose over the weekend, with Bitcoin at $22,357 and Ethereum at $1,595.
Reporting by Ankur Banerjee from Singapore and Samuel Indyk from London. Edited by Stephen Coates and Jacqueline Wong, Kirsten Donovan
Our criteria: Thomson Reuters Trust Principles.
