Dollar Declines For the Sixth day; BoE, SNB, and Norges Bank Increase Interest Rates
The dollar was on track for its longest losing streak in two and a half years on Thursday after the Federal Reserve signaled an end to interest rate hikes, while the Swiss National Bank and the Bank of England continued to raise rates.
The Fed raised its benchmark funds rate by 25 basis points on Wednesday, as expected, but dropped language about "ongoing increases" in favor of "some additional" increases as it monitors how shaky bank confidence affects the economy.
Futures suggest a 50% possibility of another quarter-point raise, compared to a 50% chance of additional tightening in Europe. The euro surged to a seven-week high of $1.0930, having previously climbed for six successive sessions. It was last trading at $1.0874.
The Fed's shift in tone makes it less likely that markets will return to fearing that solid economic data would force rates higher, according to Brian Daingerfield, NatWest Markets' head of G10 FX strategy.
"From a foreign exchange standpoint, we believe it indicates more dollar depreciation since the Fed cycle's ceiling has fallen," he added.
The dollar index, which compares the currency to six major rivals, was recently down 0.1% at 102.35, on course for its sixth consecutive daily decline, the longest such sequence since September 2021.
The Bank of England hiked borrowing prices by 25 basis points on Thursday, as expected, and stated that more tightening might be necessary if there were signs of more persistent price pressures.
"They left the door open for another hike down the road," said Danske Bank FX analyst Kirstine Kundby-Nielsen. "We don't see divergence reasons between the euro and pound, and we view it rangebound around the 0.88 level due to a dissimilar GDP forecast or a global investment climate."
The euro was last trading at 88.32 pence versus the pound, down 0.2%. Sterling rose 0.3% versus the dollar to $1.2309, having previously reached a seven-week high of $1.2341.
The Swiss National Bank (SNB) likewise hiked its policy rate by 50 basis points, attempting to strike a compromise between fighting inflation and averting financial market turbulence, while reiterating its willingness to participate in the foreign currency market.
The SNB stated that the steps made by authorities addressing Credit Suisse over the weekend had "put a stop to the issue." Following the verdict, the franc rose and was recently up 0.1% against the dollar at 0.9164.
"We're witnessing a higher franc, not just because of the raise, but also because they declared they put a stop to the banking sector problem," said Kundby-Nielsen of Danske Bank.
The Norwegian crown rose versus the euro and dollar after the Norges Bank lifted its interest rate by 25 basis points to 3% and suggested another boost was anticipated in May.
The Australian and New Zealand currencies increased by 0.4% and 0.8%, respectively. The dollar/yen, which closely tracks US rates, barely changed after touching a six-week low of 130.41 earlier.
Two-year US Treasury rates remained unchanged after falling by approximately 20 basis points on Wednesday. After a run on Silicon Valley Bank two weeks ago and the abrupt bankruptcy of Credit Suisse, financial markets throughout the world have been roiled.
The attention on the financial front is now mostly on regional institutions in the United States, where fears of a contagion run on deposits remain high. Deposit flows have stabilized in the previous week, according to Fed Chair Jerome Powell, and smaller lenders said they were encouraged by Treasury Secretary Janet Yellen's words that deposit insurance would be considered if there was a contagion risk.
According to Daniel Kimbell, an executive at the local Passumpsic Bank in St Johnsbury, Vermont, this "removed the worry out of the room." Regional lenders' stock, on the other hand, declined.