The US Dollar Index (DXY) was trading down over 100 pips as the dollar fell against a basket of its peers led by the Sterling pound and the euro. The dollar’s decline started last week as the Silicon Valley Bank saga unfolded, causing most analysts and investors to reprice the dollar.
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Today, investors were pricing in a 25 basis points hike from the Federal Reserve compared to the 50 basis points hike many were pricing in last week. The SVB collapse has triggered fears about the stability of the US financial systems, and the Fed’s hawkish monetary policy stance has come into question.
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Many pundits have attributed SVB’s collapse to the Fed’s aggressive monetary policies that have seen it hike rates multiple times last year and this year. The Fed had promised a 50bps rate hike at its March 22 meeting. Still, it might have to reconsider its position following the collapse of Silicon Valley Bank, Signature Bank and the self-liquidation of Silvergate.
While the three bank failures mainly affected banks that had exposure to specific sectors of the economy, investors are still worried about the overall health of the US financial sector, with many worried that we could see a repeat of the 2008 financial crash and the ensuing recession.
All the major currencies have rallied higher against the US dollar today, with investors buying the Japanese yen, the Australian dollar, the New Zealand dollar and the Swiss Franc. Furthermore, gold has also rallied higher as the dollar’s safe-have appeal diminished.
It is too early to tell whether the worst is over for the US financial sector. Investors are cautiously optimistic given the FDIC’s fast response to SVB’s collapse on Friday morning and the weekend decision to compensate all of SVB’s customers.
Investors should closely monitor the markets this week as the dust settles around Silicon Valley Bank and Signature Bank. There is no clear timeline for when market sentiment and conditions shall return to normal since we are in a new territory.
*This is not investment advice.
The US Dollar Index (DXY) price chart.
The US Dollar Index (DXY) was trading down 103.3 pips (0.97%) as the dollar fell against its peers.
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