Dollar holds its breath as market awaits Fed policy decision
-Fed expected to lift rates by 25 basis points on Wednesday
-Markets split on a BoE hike or pause on Thursday
-Yellen says U.S. ready to protect small bank depositors
The dollar pared earlier losses and sterling fell on Tuesday as traders reckoned banking stress could keep the Federal Reserve and the Bank of England from hiking interest rates much further, or at all, later in the week.
Investors’ focus has moved to a slew of central bank meetings due this week after days of volatility in markets caused by worries over the stability of the global banking sector.
The dollar index fell 0.058% to 103.270, while sterling edged 0.59% lower to $1.2204.
Markets are pricing in an 85% chance of a 25-basis-point rate hike when the Fed announces its monetary policy decision on Wednesday. The peak for the Fed’s benchmark overnight interest rate was seen at 5.5% only a few weeks ago, against about 4.8% now. [IRPR]
The dollar has followed those expectations lower, though general nervousness in financial markets has tempered selling.
Sentiment is fragile as investors are concerned over the outlook for the banking sector after shares of U.S. lender First Republic tumbled nearly 50% on Monday on fears it will need a second rescue.
U.S. Treasury Secretary Janet Yellen told bankers on Tuesday that she is prepared to intervene to protect depositors in smaller U.S. banks that might be suffering deposit runs if they pose a risk of contagion.
Sterling moved a bit lower, staying close to an almost seven-week high against the dollar, after data showed Britain recorded a budget deficit of 16.68 billion pounds ($20.4 billion) in February, far above expectations in a Reuters poll.
On Tuesday, minutes from the Australian central bank’s March 7 policy meeting showed officials had agreed to consider the case for a rate pause at the April meeting, even before the recent bout of volatility weighed on the Australian dollar, which fell 0.88% versus the greenback at $0.666.
The euro last was up 0.39% to $1.0761.
In cryptocurrencies, bitcoin last rose 0.32% to $28,168.00 after hitting a nine-month high on Monday. The world’s largest cryptocurrency rose 26% last week, its best weekly gain since April 2019.
