The dollar index tumbled on Monday as Treasury yield fell sharply in the wake of emergency measures by U.S. regulators to backstop depositors at SVB and Signature bank following their collapse, with safe havens yen and Swiss franc key gainers.
Eurodollar and fed fund futures rallied, reversing the lion’s share of recent rate gains that resulted from Fed Chair Jerome Powell’s hawkish recent congressional testimony.
IRPR on Eikon showed betting on the March 21-22 Fed meeting had shifted from a 70% chance of a 50bp Fed hike to a coin-toss of +25 or no move at all.
EUR/USD gained 0.9% to 1.0734, as converging ECB and Fed rates views lifting the euro ahead of Thursday’s policy meeting where Reuters consensus forecast is for 50bp hike.
USD/JPY fell 1.3% to 133.33, dipping below 55-day moving average support at 132.48 before paring losses slightly into the New York afternoon.
Diminished Fed rate expectations helped boost the yen as the U.S. central bank is expected to be less likely to stick to its higher-for-longer policy view.
Fed fund futures are now pricing in more than two Fed cuts by year end.
GBP/USD rose 1.3% to 1.2180, a new four-week high. Though there are doubts that the BoE will continue hiking, the reduced Fed hike path after yields plummeted supports further sterling gains.
A close above 1.2126, the 50% Fib of 1.2448-1.1805, opens the way for a test of January highs above 1.24.
Bitcoin rallied 9.4%, and ETH 5.53%, the Fed’s backstopping of deposits and ensuing drop in rates boosting cryptocurrencies.
Oil fell 2.3% amid reduced liquidity and growth concerns owing to the banking turmoil, while gold rallied 2.3% as lower yields reduced the cost of holding longs.
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