The U.S. dollar weakened on Friday, as losses in Credit Suisse and First Republic rekindled market panic as investors fretted about unexploded bank bombs and a possible recession from aggressive interest rate hikes .
In late New York trade, the ICE U.S. Dollar Index (DXY), which tracks the greenback against six major currencies, was down 0.604% at 103.81.
Investors are waiting for the Federal Reserve (Fed) decision-making meeting next week. The market is currently betting on a 1-point rate hike (25 basis points), rather than a resumption of the 2-point rate hike that was predicted before the collapse of Silicon Valley Bank (SVB) last week.
Federal funds rate futures contracts show a 61.3 percent chance the Fed will raise rates by a tick next week, according to CME’s FedWatch tool. Futures also indicated the Fed would cut interest rates by July, reflecting heightened recession fears.
The policy-sensitive 2-year Treasury yield fell below 4% on Friday, falling to 3.90% from 4.13% on Thursday.
European stocks rebounded in early trading on Friday, but the follow-up was weak. Since Silicon Valley Bank was taken over on March 10, there have been waves of turmoil in banking stocks. Signature Bank in New York collapsed. The SNB borrowed as much as 50 billion Swiss francs.
Meanwhile, US regional banks have recently sought emergency liquidity from the Federal Reserve’s (Fed) discount window, reaching an unprecedented record high of US$153 billion. First Republic, whose shares have tumbled this week, received a $30 billion injection from the big four banks, but the rebound was short-lived.
Credit Suisse fell 8 percent in Europe on Friday, while First Republic plunged 30 percent.
“It’s likely to increase the probability of a recession, or even a hard landing, which is a more severe recession scenario,” said Mazen Issa, senior currency strategist at TD Securities. “Once a regional bank fails, people will suspect other regional banks. Is there a problem too?”
The banking turmoil is reminiscent of the 2008 financial crisis, when dozens of financial institutions collapsed or were bailed out by central banks and governments.
Three small and medium-sized U.S. banks, including First Republic Bank, were rescued by authorities or other large banks. Credit Suisse became the first large multinational bank to receive emergency rescue funds since the financial tsunami.
“Everyone is waiting to see what will happen to the U.S. economy. Now we’re not debating whether it’s going to be a soft landing or not, but whether it’s going to be a mild or severe recession?” said Edward Moya, senior market analyst at OANDA.
EUR/USD rose 0.66% to $1.0675 on Friday. GBP/USD climbed 0.70% to $1.2192.
The dollar was down 0.39% against the Swiss franc. The Swiss franc tumbled earlier this week, its worst day of 2015, when the Swiss National Bank abruptly announced the removal of a cap on the franc’s exchange rate against the euro.
The yen surged 1.48% to 131.77 yen against the dollar, becoming a safe-haven asset in the violent market turmoil.
Officials from Japan’s finance ministry, financial services and the Bank of Japan met late Friday to discuss stress in financial markets. Masato Kanda, vice-minister of international affairs at Japan’s Ministry of Finance, said after the meeting that the government, central bank and bank regulators will coordinate and cooperate to ensure the stability of the financial system.
As of Saturday (18th) around 6:00 Taiwan time Price:
The dollar index was at 103.8753. -0.53% Euro/dollar (EUR/USD) exchange rate quoted 1 euro to 1.0664 dollars. +0.48% GBP/USD is trading at 1.2175 US dollars to 1 British pound. +0.53% Australian Dollar to U.S. Dollar (AUD/USD) exchange rate quoted 1 Australian Dollar to 0.6695 US Dollar. +0.63% The U.S. dollar to Canadian dollar (USD/CAD) exchange rate was quoted at 1.3727 Canadian dollars to the U.S. dollar. +0.05% USD/JPY is quoted at 131.80 yen to the US dollar. -1.33%