EUR/USD traded not far from fresh one-month highs on Tuesday, as concerns over a larger systemic crisis in the wake of the collapse of Silicon Valley Bank (SVB) and Signature Bank triggered speculation that the Fed could pause its rate-hiking cycle.
The abrupt collapse of startup-focused Silicon Valley Bank, the largest bank failure in the US since the 2008 financial crisis, has brought forth questions whether the Federal Reserve’s aggressive policy tightening has exposed cracks among major players within the US banking sector.
“The SVB crisis highlights the fact that … when you lift interest rates by quite a lot, you usually find out there’s a few people swimming naked,” Rodrigo Catril, senior currency strategist at National Australia Bank, was quoted as saying by Reuters.
“And that argument applies not just to the U.S., but around the globe … Regardless of the fact that the authorities in the U.S. have provided that security assurance that depositors will be ok, investors don’t know if they’re going to be ok, and therefore they’re running for the door.”
SVB contagion concerns prompted market players to scale back bets on how much further the Federal Reserve would keep hiking interest rates, while pressuring the US Dollar.
Futures pricing now indicates a 35% chance that the FOMC would put interest rates on hold at its upcoming policy meeting next week, while the central bank is expected to introduce a rate cut as soon as June.
As of 10:37 GMT on Tuesday EUR/USD was edging down 0.15% to trade at 1.0715. Yesterday the major Forex pair registered its sharpest advance since March 1st, climbing as high as 1.0748. The latter has been the pair’s strongest level since February 14th (1.0804).
The US Dollar Index, which reflects the relative strength of the greenback against a basket of six other major currencies, was edging up 0.19% to 103.818 on Tuesday.