FOREX-Dollar falls for sixth day as central bank puts rate hike on hold

By Samuel Indyk and Tom Westbrook

LONDON/SINGAPORE, March 23 (Reuters) – The dollar headed for its longest losing streak in 2-1/2 years on Thursday after the Federal Reserve moved closer to calling for interest rate hikes on Thursday. The bank went ahead with another hike.

The central bank raised its benchmark funds rate by 25 basis points as expected, but dropped language on “continuing increases” needed in favor of “some additional” hikes as it looks at how faltering confidence in banks is affecting the economy.

Futures still represent a 50% chance of a quarter-point hike, unlike in Europe, where markets will see 50 bps further tightening.

The gap sent the euro to a seven-week high of $1.0930.

A change in tone from the Fed eases markets’ worries that strong economic data will lead to higher rates, said Brian Daingerfield, NatWest Markets head of G10 FX strategy.

“From a foreign exchange perspective, this argues for further dollar weakness as the ceiling for the central bank cycle has clearly decreased,” he said.

The dollar index, which measures the currency against six major peers, was last down 0.2% and is on track for its sixth consecutive daily decline, the longest such streak since September 2021.

The Swiss National Bank raised its policy rate by 50 basis points as the central bank sought to balance inflation with concerns about financial market turmoil, while reiterating its readiness to act in the foreign exchange market.

The SNB also said the measures authorities announced over the weekend at Credit Suisse “stopped the crisis”.

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The franc strengthened after the close and rose 0.2% to 0.9155 against the dollar.

“We’re seeing a stronger franc, not just because of the rise, but because they’ve effectively said they’re stopping the crisis in the banking sector,” said Kirstine Kundby-Nielsen, FX analyst at Danske Bank.

After showing a surprise rise in British inflation on Wednesday, sterling edged closer to a seven-week high, leaving it at 10.4%, piling pressure on the Bank of England to raise rates at its meeting.

Markets have priced in a 25-bp hike from the BoE.

The Norwegian crown strengthened against the euro and dollar after Norges Bank raised its interest rate by 25 bps to 3% and said a hike was possible in May.

The Australian and New Zealand dollars rose 0.6% and 0.9% respectively. Dollar/yen, which tracks US yields closely, fell 0.3% after earlier hitting a six-week low of 130.41.

Two-year US Treasury yields fell 2 bps, extending Wednesday’s decline of about 20 bps.

Financial markets rallied after a Silicon Valley bank run and the sudden demise of Credit Suisse two weeks ago, with confidence in banks faltering worldwide.

On the banking front, the focus is now primarily on US regional lenders, where concerns about a contagion of deposits are high.

Federal Reserve Chairman Jerome Powell said last week that deposit flows had stabilized and that small lenders were taking some comfort from US Treasury Secretary Janet Yellen’s suggestion that deposit insurance would be considered a contagion risk.

It “took the nervousness out of the room,” said Daniel Kimpel, an executive at the local Passumsic Bank in St. Johnsbury, Vermont. However, shares of regional lenders fell.

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(Reporting by Tom Westbrook in Singapore and Samuel Indick in London; Editing by Simon Cameron-Moore, Sonali Paul, Emilia Sithole-Madaraise and Alshan Williams)

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