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Dollar falls for sixth day as Fed signals rate-hike pause

Thursday,   23-Mar-2023   04:01 PM (IST)

The dollar headed for its longest losing streak in 2-1/2 years on Thursday after the Federal Reserve sounded close to calling time on interest rate hikes, while the Swiss franc edged higher after the central bank pushed ahead with another hike. The Fed raised its benchmark funds rate by 25 basis points, as expected, but dropped language about "ongoing increases" being needed in favour of "some additional" rises, as it watches how wobbling confidence in banks affects the economy. Futures imply around a 50% chance of one more quarter-point hike, in contrast to Europe where markets see around 50 bps of further tightening. The gap has sent the euro surging to a seven-week high of $1.0930, having also risen for six straight sessions. The dollar index , which measures the currency against six major peers, was last down 0.2%, on track for its sixth straight daily drop, its longest such streak since September 2021. The Swiss National Bank raised its policy rate by 50 basis points as the central bank sought to balance tackling inflation with concerns about financial market turmoil, while it reiterated it was willing to be active in the foreign exchange market. The SNB also said measures announced by authorities at the weekend regarding Credit Suisse had "put a halt to the crisis". The franc strengthened after the decision and was last up 0.2% against the dollar at 0.9155. Sterling also hovered near a seven-week high after data showed a surprise rise in British inflation on Wednesday, leaving it at 10.4% and heaping pressure on the Bank of England to raise rates and sound hawkish at its meeting later on. Markets have priced in a 25-bp hike from the BoE. The Norwegian crown strengthened against the euro and dollar after the Norges Bank raised its interest rate by 25 bps to 3% and said a hike in May was likely. The Australian and New Zealand dollars rose 0.6% and 0.9% respectively. Dollar/yen, which closely follows U.S. yields, fell 0.3% after earlier hitting a six-week low of 130.41. Two-year U.S. Treasury yields fell 2 bps, extending a drop of about 20 bps on Wednesday. Financial markets have been roiled by wavering confidence in banks globally following a run on Silicon Valley Bank two weeks ago and the sudden demise of Credit Suisse. The focus on the banking front is now primarily on U.S. regional lenders where worry of a contagious run on deposits remains elevated. Fed Chair Jerome Powell said deposit flows have stabilised in the last week, and smaller lenders said they took some comfort from U.S. Treasury Secretary Janet Yellen's remarks that deposit insurance would be considered were there to be a contagion risk.