Dollar slips as banking turmoil roils markets

(C) Reuters. FILE PHOTO: A U.S. one dollar banknote is seen in this illustration taken November 23, 2021. REUTERS/Murad Sezer/Illustration/File Photo

By Herbert Lash and Amanda Cooper

NEW YORK/LONDON (Reuters) – The dollar fell on Friday as concerns of further turmoil in banking rattled equity markets and sent Treasury yields lower, while driving fears that a recession lies on the horizon.

An early recovery in European stocks ran out of steam as investor sentiment remained fragile after a week of turbulence sparked by the failure of Silicon Valley Bank and concerns over Credit Suisse despite a $54 billion lifeline for the bank.

The University of Michigan’s survey of consumer sentiment fell for the first time in four months even as readings on inflation expectations receded. The survey was mostly done before regulators shut SVB last week.

Preliminary results on economic conditions and consumer expectations also slid, the UMich surveys showed.

The dollar index, a measure of the dollar against six other currencies, fell 0.249%, while the euro was up 0.26% to $1.0633.

Contracts in the fed funds futures show a 74.5% probability of the Federal Reserve will raise interest rates by a one-quarter percentage point next week, CME’s FedWatch Tool shows.

But expectations also show the Fed will be cutting rates by July as recession fears mount.

“There’s this belief that we’re heading towards a recession and depending on if the Fed makes a policy mistake, it can be a really severe one,” said Ed Moya, senior market analyst at OANDA in New York.

“There is a wait and see approach as to what will happen with the U.S. economy,” he said. “Now we’re not debating a’soft landing, no landing.’ We’re debating is it a mild or severe recession.”

The rescue of First Republic on Thursday initially boosted risk appetite on Friday as concerns about global banks eased, making way for surges in the Australian and New Zealand dollars.

Banking troubles revived memories of the 2008 financial crisis, in which dozens of institutions failed or were bailed out with billions of dollars of government and central bank money.

Three smaller U.S. lenders, including First Republic, have had regulators and other banks step in to prop them up, while in Europe, Credit Suisse became the first major global bank since the financial crisis to get an emergency lifeline.

Sterling was last trading at $1.2144, up 0.31% on the day, while the dollar fell 0.17% against the Swiss franc. Earlier in the week, the franc plunged by the most against the dollar in a day since 2015, when the Swiss central bank loosened its currency peg.

The Japanese yen, which tends to benefit in times of extreme market volatility or stress, strengthened 1.28% versus the greenback at 132.05 per dollar.

Japan’s Ministry of Finance, Financial Services Agency and Bank of Japan officials met on Friday evening to discuss financial markets.

Masato Kanda, vice finance minister for international affairs, told reporters after the trilateral meeting that the government, the central bank and the banking watchdog would coordinate to ensure the stability of the financial system.

The Australian dollar, which often outperforms when investors are feeling optimistic, rose 0.44% at $0.668.

Currency bid prices at 11:07 a.m. (1507 GMT)

Description RIC Last U.S. Close Pct Change YTD Pct Change High Bid Low Bid

Previous

Session

Dollar index 104.1100 104.3900 -0.25% 0.599% +104.4400 +103.8900

Euro/Dollar $1.0634 $1.0611 +0.21% -0.77% +$1.0670 +$1.0611

Dollar/Yen 132.0350 133.7800 -1.30% +0.71% +133.7350 +131.8200

Euro/Yen 140.40 141.91 -1.06% +0.09% +142.2000 +140.1700

Dollar/Swiss 0.9276 0.9293 -0.15% +0.35% +0.9299 +0.9241

Sterling/Dollar $1.2144 $1.2110 +0.30% +0.43% +$1.2175 +$1.2103

Dollar/Canadian 1.3757 1.3722 +0.30% +1.57% +1.3762 +1.3679

Aussie/Dollar $0.6684 $0.6658 +0.41% -1.93% +$0.6724 +$0.6650

Euro/Swiss 0.9863 0.9859 +0.04% -0.30% +0.9881 +0.9841

Euro/Sterling 0.8754 0.8760 -0.07% -1.02% +0.8782 +0.8745

NZ Dollar/Dollar $0.6252 $0.6196 +0.90% -1.54% +$0.6260 +$0.6192

Dollar/Norway 10.7320 10.7700 -0.23% +9.49% +10.7660 +10.6700

Euro/Norway 11.4156 11.4211 -0.05% +8.78% +11.4364 +11.3507

Dollar/Sweden 10.5172 10.5049 +0.18% +1.04% +10.5515 +10.4430

Euro/Sweden 11.1784 11.1582 +0.18% +0.26% +11.2054 +11.1239