Dollar rises after tumbling on SVB collapse

THE dollar edged higher in calmer trading on Tuesday (Mar 14), after tumbling on Monday following the collapse of Silicon Valley Bank (SVB).

It comes a day after fears of a potential banking crisis caused traders to rapidly scale down their expectations for Federal Reserve rate hikes.

The euro was last 0.08 per cent lower at US$1.072 as the greenback bounced. It hit a one-month high of US$1.075 on Monday and rose 0.85 per cent across the session.

The dollar was up 0.61 per cent to 134.02 yen, reversing some of Monday’s 1.38 per cent slide.

“We have seen some retracement of the dollar’s losses overnight, but it’s quite partial,” said Alvin Tan, head of Asia FX strategy at RBC Capital Markets.

Over the weekend, US authorities launched emergency measures in response to SVB’s collapse, promising to protect depositors in a bid to shore up banking confidence. US President Joe Biden on Monday vowed to take action to ensure the safety of the banking system.

Yet SVB’s demise – the largest bank failure since the 2008 financial crisis – sent bank stocks tumbling in Europe and the United States on Monday and in Asia on Tuesday.

Bond yields plunged on Monday as investors stampeded into safe assets and rapidly reconsidered the path of interest rates.

Pricing in derivatives markets on Tuesday showed traders see a 30 per cent chance the Fed leaves rates on hold on March 22 and a 70 per cent chance of a 25 basis point (bp) hike. Just a week ago, a 50 bp increase was seen as most likely.

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The rapid drop in bond yields pulled down the dollar on Monday, despite its status as a safe asset, analysts said.

Yet the dollar index, which measures the currency against six peers, rose 0.11 per cent to 103.79 on Tuesday. It fell 0.94 per cent on Monday.

Britain’s pound was down 0.28 per cent to US$1.215, after jumping 1.22 per cent on Monday. Data on Tuesday showed UK pay growth slowed in the three months to January.

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.

The dollar was down 0.13 per cent to 0.911 Swiss francs on Tuesday, after dropping 1.04 per cent against the safe-haven currency on Monday.

The Australian dollar was down 0.14 per cent at US$0.666. REUTERS