Daily Market Update

Dollar On Back Foot on Financial System Woes

March 13, 2023

The United States Dollar starts the trading week heavily on the back foot as the collapse of Silicon Valley Bank raised the possibility that the Federal Reserve may slow the pace and scope of US interest rate hikes.


The fallout from Friday’s closure continued to reverberate throughout the banking sector over the weekend – Signature Bank was shuttered by US regulators Sunday, and at the beginning of Monday’s session, First Republic Bank shares lost nearly two-thirds of their value.  Though signs point to these collapses as relatively contained to regional banks with heavy cryptocurrency exposure, the doubts these failures raise about the stability of the entire US financial system are weighing heavily on the odds of a rate hike from the Fed on March 22.Over the weekend, the US Treasury, Federal Reserve, and Federal Deposit Insurance Corporation (FDIC) made two major policy announcements intended to bring more stability to the banking system and prevent further deposit outflows from regional banks. The FDIC announced it had used the “systemic risk exception” facility to protect uninsured depositors from SVB and Signature Bank, and the Fed and Treasury jointly announced the Bank Term Funding Program (BTFP), which provides liquidity for up to one year to federally insured banks eligible for discount window access. These two policies together are meant to prevent bank runs like what markets saw on SVB on Friday, but their effectiveness is questionable given the moves seen on the First Republic this morning.Currently, traders are questioning not only the size of a potential hike from the Fed on March 22 but whether the central bank will raise rates at all in a dramatic turn from Friday. US Treasury yields have continued to fall along with equities across the board, and pressure remains on the Buck as the US begins to lose its “safe haven” status. Market sentiment remains jittery, inflation data for February is due tomorrow, and the Fed’s path forward is more uncertain than ever.


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The Japanese Yen led gains against the greenback over the weekend and into the morning’s trading session as traders slashed Fed bets and the Yen rallied on safe-haven demand. Gaining over a percent and a half, the relative stability of the Japanese economy drove demand for the currency and pushed prices to their strongest in roughly a month. An initial relief rally seen in Asian trade gave way to risk aversion selling in equities and buying in bonds.



The Mexican Peso fell nearly 2 percent to start the week during the Asian session overnight as global portfolios made moves to de-risk exposure. Retreating back to levels seen more commonly over the last few months, Peso fell victim to the US financial system’s instability and dropped against all majors. Direct exposure to the US market and deep correlation with US economic performance is making MXN a target for bears. All LATAM currencies are down this morning.

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