LONDON/SINGAPORE, March 23 (Reuters) – The dollar headed for its longest losing streak in 2 1/2 years on Thursday after the US Federal Reserve came close to announcing rate hikes, while the Swiss franc surged higher after the central bank pushed on another hike.
The Fed raised its benchmark interest rate by 25 basis points, as expected, but dropped talk of requiring “ongoing increases” in favor of “some additional” hikes as it monitors how faltering confidence in banks is affecting the economy.
Futures imply about a 50% chance of another quarter point hike, in contrast to Europe where markets expect another tightening of about 50 basis points.
The gap has pushed the euro to a seven-week high of $1.0930 after it also rose for six straight sessions.
The Fed’s change of tone makes it less likely that markets will return to fears that strong economic data is driving rates higher, said Brian Daingerfield, head of G10 FX strategy at NatWest Markets.
“From a FX perspective, we think this speaks for further dollar weakness as the Fed cycle ceiling has clearly come down,” he said.
The dollar index, which measures the currency against six major peers, was last down 0.2% and on course for its sixth straight daily decline, the longest of its kind since September 2021.
The Swiss National Bank raised interest rates by 50 basis points as the central bank tried to balance inflation control with concerns about the financial market turmoil, while reaffirming its willingness to take action in the foreign exchange market.
The SNB also said the measures regarding Credit Suisse announced by the authorities over the weekend had “stopped the crisis”.
The franc strengthened after the decision and was last up 0.2% against the dollar to 0.9155.
“We’re seeing a stronger franc, not just because of the hike, but because they’ve effectively said they’re stopping the crisis in the banking sector,” said Kirstine Kundby-Nielsen, FX analyst at Danske Bank.
Sterling was also hovering near a seven-week high after data showed a surprise rise in UK inflation on Wednesday, keeping it at 10.4% and increasing pressure on the Bank of England to hike interest rates and to sound restrictive at their later meeting.
Markets have priced in a 25bp hike by the BoE.
The Norwegian krone appreciated against the euro and the dollar after Norges Bank raised its interest rate by 25 basis points to 3% and said a rate hike in May was likely.
The Australian and New Zealand dollars gained 0.6% and 0.9% respectively. The dollar/yen, which closely tracks US yields, fell 0.3% after hitting a six-week low of 130.41.
Two-year US Treasury yields fell 2 basis points, extending a roughly 20 basis point decline on Wednesday.
After a run on Silicon Valley Bank two weeks ago and the sudden demise of Credit Suisse, financial markets were rocked by faltering confidence in banks around the world.
The focus on the banking front is now mostly on US regional lenders, where concerns of a contagious deposit rush remain high.
Fed Chair Jerome Powell said deposit flows had stabilized over the past week, and smaller lenders said they took comfort from US Treasury Secretary Janet Yellen’s remarks that deposit insurance would be considered if there was a risk of contagion .
That “takes the fear out of the room,” according to Daniel Kimbell, an executive at local Passumpsic Bank in St. Johnsbury, Vermont. However, the shares of regional lenders declined.
Reporting by Tom Westbrook in Singapore and Samuel Indyk in London; Edited by Simon Cameron-Moore, Sonali Paul, Emelia Sithole-Matarise and Alsion Williams
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