(Adds comment, fresh prices)
The dollar fell on Monday as markets bet the Federal Reserve will halt or trim its raising interest rates to curb inflation after U.S. authorities moved to limit the fallout from the sudden collapse of Silicon Valley Bank.
President Joe Biden said the administration's swift actions on Sunday to ensure depositors can access their funds in Silicon Valley Bank (SVB) SIVB.O and Signature Bank SBNY.O should give Americans confidence that the U.S. banking system was safe.
The Fed on Sunday announced it would make additional funding available through a new Bank Term Funding Program, which would offer loans of up to one year to depository institutions, backed by Treasuries and other assets these institutions hold.
The dollar index =USD , which measures the greenback against six other currencies, fell 0.70% as short-dated Treasury yields tumbled.
The two-year note's US2YT=RR yield plunged 50.8 basis points to 4.080% in the biggest one-day drop since the financial crisis of 2008. The note was on track for its biggest three-day decline since the Black Monday stock market crash of 1987.
"The financial crisis is cutting short monetary tightening. There's a big shift in rate expectations," said Marc Chandler, chief market strategist at Bannockburn Global Forex in New York.
"The market's already is pricing in a cut again in Q4," he said. Fed funds futures also tumbled, with expectations of the Fed's terminal rate sliding to 4.05% in December from above 5% on Friday. FEDWATCH
Goldman Sachs GS.N , among other big banks, said it no longer expects the Fed to deliver a rate hike at the end of its two-day policy meeting on March 22.
Barclays BARC.L said that the latest bout of financial market jitters introduced significant uncertainty into the market and that policymakers will pause at next week's meeting.
Futures showed a 32.8% chance of no increase in rates at next week's meeting, according to CME's FedWatch Tool.
"The biggest fear right now is contagion. Contagion is underpinned by fear and panic, and that’s more difficult to control than providing liquidity and covering depositors," said Quincy Krosby, chief global strategist at LPL Financial in Charlotte, North Carolina.
CPI IN FOCUS With speculation rampant on how the Fed will handle monetary policy and fight to rein in inflation, the market focus turns to the release on Tuesday of the consumer price index (CPI) data.
"There's been a radical change in interest rate expectations and in that scenario the dollar has weakened," said Niles Christensen, chief analyst at Nordea.
If concerns over the U.S. banking system are contained and do not spread, "expectations for rate hikes should be revived quickly," he said.
Safe-haven currencies, such as the Japanese yen and Swiss franc, benefited from the fallout from SVB. The Japanese yen strengthened 1.47% at 133.04 per dollar, while the dollar CHF= fell 1.23% against the Swiss franc at 0.910.
The euro EUR=EBS rose 0.96% to $1.0745. Earlier, it hit a near one-month high of $1.0737, ahead of the European Central Bank's policy meeting on Thursday.
Expectations call for the ECB to deliver a 50-basis-point hike, Christensen said. "The question is how hawkish will the ECB be. We think they'll signal there will be more rate hikes to come," he said.
Sterling GBP= traded at $1.2166, up 1.15% on the day. The Mexican peso, stronger than the dollar all year, lost 2.31% versus the greenback at 18.93.
The Australian dollar jumped 1.49% to $0.668, on track for its biggest one-day percentage jump since Feb. 7. Bitcoin BTC= and other cryptocurrency soared as investors breathed a sigh of relief that regulators had moved to bolster the U.S. banking system. Bitcoin rose 19.74% to $24,061.16.
======================================================== Currency bid prices at 1:20PM (1720 GMT)Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid Previous Change Session Dollar index =USD 103.5100 104.2500 -0.70% 0.019% +104.3900 +103.4900 Euro/Dollar EUR=EBS $1.0745 $1.0639 +1.00% +0.28% +$1.0749 +$1.0648 Dollar/Yen JPY=EBS 133.0200 135.1000 -1.54% +1.45% +135.0200 +132.2950 Euro/Yen EURJPY= 142.93 143.70 -0.54% +1.87% +144.3800 +141.3800 Dollar/Swiss CHF=EBS 0.9100 0.9216 -1.29% -1.61% +0.9201 +0.9073 Sterling/Dollar GBP=D3 $1.2166 $1.2036 +1.09% +0.61% +$1.2178 +$1.2040 Dollar/Canadian CAD=D3 1.3714 1.3827 -0.81% +1.22% +1.3823 +1.3678 Aussie/Dollar AUD=D3 $0.6675 $0.6582 +1.43% -2.06% +$0.6717 +$0.6587 Euro/Swiss EURCHF= 0.9778 0.9804 -0.27% -1.17% +0.9834 +0.9715 Euro/Sterling EURGBP= 0.8831 0.8845 -0.16% -0.15% +0.8863 +0.8812 NZ Dollar/Dollar NZD=D3 $0.6237 $0.6135 +1.67% -1.76% +$0.6264 +$0.6140 Dollar/Norway NOK=D3 10.5460 10.6110 -0.80% +7.25% +10.6930 +10.5140 Euro/Norway EURNOK= 11.3342 11.3199 +0.13% +8.01% +11.4303 +11.2639 Dollar/Sweden SEK= 10.5915 10.6973 -0.18% +1.77% +10.7574 +10.5750 Euro/Sweden EURSEK= 11.3826 11.4032 -0.18% +2.09% +11.4816 +11.3400 <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ World FX rates https://tmsnrt.rs/2RBWI5E^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
