The US Dollar started the new week under heavy selling pressure with markets reassessing the next Federal Reserve policy action following the collapse of Silicon Valley Bank (SVB). The benchmark 10-year US Treasury bond yield is down 0.7% below 3.7% following Friday’s 6% decline and the US Dollar Index stays deep in negative territory at around 104.00 early Monday. There will not be any high-tier macroeconomic data releases featured in the economic calendar on Monday.
As the Fed raised interest rates, the value of long-term bonds that were collected by SVB during the ultra-low Fed interest rate regime continued to decline. With start-ups starting to draw down funds held by SVB due to higher borrowing costs, the bank faced a capital crisis and announced that it will be selling more than $2 billion worth of new shares to solve the liquidity crunch on Wednesday. This decision caused companies and depositors to rush to withdraw their money from the bank, leading to the collapse of SVB by Friday.
Over the weekend, the Federal Deposit Insurance Corporation (FDIC) took control of the New York-based Signature Bank. Meanwhile, US authorities launched emergency measures on Sunday to avoid collateral damage in the banking system. Regulators assured customers that they will have access to all their deposits starting Monday. Moreover, the Fed introduced a new facility that will provide loans up to one-year for institutions that were impacted by the failure of SVB.
According to CME Group FedWatch Tool, markets are currently pricing in a 96% probability of a 25 basis points rate hike at the next FOMC meeting. Earlier in the day, “in light of recent stress in the banking system, we no longer expect the FOMC to deliver a rate hike at its March 22 meeting with considerable uncertainty about the path beyond March,” Goldman Sachs said.
EUR/USD extended its rally early Monday and reached its highest level in a month above 1.0700. As of writing, the pair was up 0.75% on the day at 1.0720.
GBP/USD preserves its bullish momentum and trades in positive territory at around 1.2100. HSBC UK Bank plc announced recently that it has acquired SVB’s UK unit, Silicon Valley Bank UK Limited.
Pressured by the broad-based US Dollar weakness, USD/JPY fell sharply during the Asian trading hours before staging a technical correction. As of writing, the pair was down 0.4% on the day at 134.45.
Gold price capitalized on the risk-averse market environment and retreating US Treasury bond yields. XAU/USD opened with a bullish gap and reached its highest level since early February at $1,894 before retreating below $1,880.
Following the sharp decline witnessed in the week, Bitcoin recovered sharply over the weekend, gaining nearly 8% on Sunday. BTC/USD was last seen rising more than 1% on the day at $22,550. Ethereum rose nearly 10% over the weekend and ended up closing the week in positive territory. ETH/USD continues to stretch higher and was last up 1.7% at $1,620.