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Dollar steadies on improved banking confidence; First Citizens to buy SVB

Published 03/27/2023, 03:13 AM
Updated 03/27/2023, 03:39 AM
© Reuters.

By Peter Nurse

Investing.com - The U.S. dollar steadied in early European trade Monday on rising optimism the U.S. banking turmoil could be contained, although confidence in the sector remained fragile.

At 03:15 ET (07:15 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded largely unchanged at 102.745, above the seven-week low seen last week.

News released early Monday that First Citizens BancShares (NASDAQ:FCNCA) agreed to acquire Silicon Valley Bank's deposits and loans has soothed market nerves surrounding the health of smaller U.S. banks.

This followed both U.S. Treasury Secretary Janet Yellen and Federal Reserve Chair Jerome Powell attempting to reassure the market that the U.S. banking system remained sound.

However, deposits at small banks fell by $120 billion in the week to March 15, while borrowing jumped $253B, indicating pressures remain severe.

Minneapolis Fed president Neel Kashkari said on Sunday the recent stress in the banking sector and the possibility of a follow-on credit crunch has brought the U.S. closer to recession.

This has led the market to largely price in the Fed standing pat with interest rate hikes in May, before cutting in the summer, to the detriment of the dollar.

"There are around 90bp of cuts priced in, starting in July, and the unclear Fed communication is doing very little to reliably push back against those," said analysts at ING, in a note.

Elsewhere, EUR/USD edged higher to 1.0762, after falling 0.6% on Friday when German banking giant Deutsche Bank's (ETR:DBKGn) shares slumped on contagion fears.

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European Central Bank President Christine Lagarde told European Union leaders on Friday that the euro-area banking sector remains healthy because of the strong regulatory regime.

Traders will keep an eye on the German Ifo release for March later in the session, for clues of sentiment in businesses in the Eurozone’s largest economy.

GBP/USD rose 0.2% to 1.2257, having fallen 0.5% on Friday, while the risk-sensitive AUD/USD rose 0.3% to 0.6663.

USD/JPY rose 0.4% to 131.25, with the safe-haven yen losing a degree of appeal, while USD/CNY rose 0.2% to 6.8785 after data showed industrial profits fell sharply in the first two months of 2023, pointing to a slow economic recovery in China.

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