SINGAPORE- The dollar languished near a multi-week low on Tuesday as fears of a broader systemic crisis following the collapse of a US tech-focused lender left traders speculating that the Federal Reserve could pause its aggressive rate-hiking cycle.
Market jitters continued to set the tone for a second straight trading day in the wake of the sudden collapse of Silicon Valley Bank (SVB) and Signature Bank, although US President Joe Biden on Monday vowed to take action to ensure the safety of the US banking system.
Over the weekend, US authorities launched emergency measures to shore up banking confidence.
The fallout sent traders scaling back their bets on how much further the Fed would continue raising interest rates, sparking a sharp rally in Fed funds futures and sending the US dollar tumbling.
The greenback was nursing deep losses from the previous session in early Asia trade, and was last marginally higher against the Japanese yen at 133.42, having slid 1.4 percent on Monday.
Similarly, sterling edged 0.19 percent lower to $1.2159, though it remained near its one-month peak of $1.2200 hit in the previous session. The euro fell 0.09 percent to $1.0719, but was likewise not far from Monday’s one-month top of $1.07485.
The collapse of SVB – the largest bank failure since the 2008 financial crisis – has highlighted whether the Fed’s rate increases, which took rates from near zero percent a year ago to more than 4.5 percent at present, had exposed cracks among key players within one of the world’s largest and most heavily interconnected banking sectors.
“The SVB crisis highlights the fact that … when you lift interest rates by quite a lot, you usually find out there’s a few people swimming naked,” said Rodrigo Catril, senior currency strategist at National Australia Bank. — Reuters
