Asian forex rise, dollar falls on SVB, and rate outlook. A possible banking catastrophe in the US caused markets to alter the rate opinion for further interest rate hikes by the Fed this year.
Asian forex rise
The majority of Asian currencies increased on Monday, while the dollar fell to close to three-week lows.
The majority of regional currencies also drastically reversed losses from the previous week, with the Chinese yuan rising 0.3 percent as it retreated from the crucial 7 levels.
The government’s decision to keep its top financial representatives and top officials’ assurances of additional economic support measures, boosted sentiment toward China.
Asian forex markets led by yuan, US dollar falls
Offshore yuan increased by 0.8 percent
Other Asian currencies also increased in value, with the South Korean won topping gains with a 1.4% jump. The Malaysian ringgit topped gains in Southeast Asia with a 0.8% increase. While the Japanese yen increased by 0.6 percent.
Before important consumer price index inflation (CPI) figures that are expected later in the day. The Indian rupee lagged behind its peers, maintaining a narrow range. Price constraints are anticipated to have gotten worse in February compared to January.
The DXY and dollar index futures both suffered extreme declines of 0.7 percent and 0.6%, accordingly, vs a group of currencies. The 3 lows for both instruments were also not far away.
Yield curve inversion and Fed
After the Fed loosened some bank borrowing restrictions over the weekend in response to Silicon Valley Bank’s collapse. The inversion of the US yield curve also decreased (NASDAQ: SIVB). The central bank announced that an emergency gathering will take place on Monday.
Markets were now factoring in a higher probability of a 25 basis point (bps) hike by the Fed next week. Down from earlier expectations for a 50 bps rise, as evidenced by Fed Funds futures prices.
The collapse of SVB reveals the widening economic fissures caused by a sharp rise in U.S. interest rates. Following the Fed’s most ferocious tightening campaign in fifty years.
Markets betting on softer Fed stance on interest rates
However, markets are now placing bets that the Fed will tone down its hardline tone in order to prevent further stress on the financial system. When the Fed meets on March 22, Goldman Sachs analysts said they no longer anticipate the Fed raising rates. This the prognosis for subsequent rate hikes is now uncertain.
The possibility of a 50 bps increase next week has been significantly diminished, according to analysts. A 25 bps hike may still be in the cards.
The forecast for U.S. rate increases was also harmed by statistics released last week that indicated some slowing in wage growth. This week’s attention is on the CPI figure for Feb.
