The Collapse Of The Silicon Valley Bank Weakened The Dollar And USD/JPY But Supported EUR/USD, AUD/USD, And GBP/USD
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The dollar fell on Monday on heightened expectations the Federal Reserve will be less aggressive with monetary policy as authorities stepped in to limit the fallout from the sudden collapse of Silicon Valley Bank. The U.S. government announced several measures early in the Asian trading day, saying all SVB customers will have access to their deposits starting on Monday.
Tomorrow’s US CPI report will make things interesting should inflation come in higher than expected, making the Fed’s task that much harder.
USD/JPY
The yen pair started the new week at the level of 134.8590 and in the first trading hours it was in the range of 134.25-134.75. USD/JPY then started a dip towards 133.75 but rebounded back to near 134.75. In the European session, USD/JPY fell again, but this time towards 133.00. At the time of writing, the yen pair is trading around 133.40.
Concerns about the imposition of a global economic action continue to weigh on investor sentiment, which in turn favors a safe haven for the Japanese yen (JPY) and puts some downward pressure on the major currency. Both added further fueled by recent Chinese volume data, which appear to have left domestic demand weak and lowered on a strong recovery in the world's second-largest economy.
However, any significant pullback in USD/JPY still seems elusive amid expectations that the Bank of Japan (BoJ) will remain dovish to support a fragile domestic economy. In fact, the new BoJ governor, Kazuo Ueda, recently stressed the need to maintain ultra-loose policy settings and said the central bank is not aiming for a quick turnaround from a decade of massive easing. Bets were further raised after the release of the final GDP printout, which showed Japan's economy narrowly avoided a technical recession in the final months of 2022.
EUR/USD
The euro pair started the day at 1.0686, but started falling. After the decline, the EUR/USD pair gained momentum and exceeded 1.07. In the following hours, the EUR/USD pair traded in the 1.0720-1.0730 range. In the European session, the euro fell again below 1.07 and at the time of writing trades above 1.0670.
EURUSD rose overnight to a new monthly high of 1.0737 as the USD sell-off continued. At the European open, EURUSD pulled back slightly, flirting again with 1.0700 as markets scrutinize the SVB news and emergency measures taken by the US authorities to ensure confidence in the banking sector. Regulators have confirmed that the Bank's customers will have access to their deposits on Monday, while launching a new facility to give banks access to emergency funds.
EURUSD continues to look more favorable going forward as market participants dropped expectations for a 50bps hike by the Federal Reserve at its March meeting on Friday. This is in contrast to the European Central Bank (ECB), whose interest rate decision will be taken on Thursday, with consensus and market participants favoring a 50 basis point hike.
GBP/USD
GBP/USD started the day at 1.2077 and the first moves were similar to the euro. In the Asian session, the pair of the cable crossed the level of 1.2125, but did not maintain momentum and started a downtrend that is still ongoing. At the time of writing, GBP/USD is below 1.2075.
AUD/USD
The movement of the Australian pair is like the euro. AUD/USD started trading at 0.6633 and then fell towards 0.6600. After the decline, the Aussie pair rose and for the next hours of trading in the Asian session it was in the range of 0.6660-0.6670. In the European session, the AUD/USD pair started a downward move towards 0.6610. At the time of writing, the trading level of the Aussie pair was below 0.6620.
The Australian dollar gained support on Monday morning after continued concerns over the collapse of the Silicon Valley Bank.
The result was a dovish overestimation of Fed interest rates. Money markets have drastically reduced the potential for a 50bps towards a 25bps increment.
Source: finanace.yahoo.com, investing.com
