SINGAPORE The dollar was under pressure near seven-week lows on Thursday as the Federal ReserveFederal Reserve sounded close to calling time on interest rate hikes.
The Fed raised its benchmark funds rate by 25 basis points, but dropped language about ongoing increases in favor of additional rises as it waits and watches how wobbling confidence in banks affects the economy.
There is a chance that one more hike will be made in the near future. That is a contrast to Europe where markets see another 50 bp or so to go, and the gap sent the euro surging.
The dollar was down after U.S. Treasury Secretary Janet Yellen set off another round of bank stock selling and jitters over stability by telling Congress she hasn't considered or discussed blanket insurance for deposits.
The euro went up by 1.3 per cent to its highest since early February, at $1.0912, though it had dropped back to bought $1.0872 by the Asian morning.
The Bank of England has to raise rates and sound hawkish at its meeting later in the day as British inflation unexpectedly rose, leaving it at an eye-watering 10.4 per cent.
The dollar yen fell 0.7 per cent overnight and was edging lower in the Asian morning at 131.19. Two-year Treasury yields fell 22 bps on Wednesday.
The Fed has changed its tone to make it less likely that markets return to worrying that strong economic data is going to lead to more rate hikes, said Brian Daingerfield, head of NatWest Markets' G 10 FX strategy.
We think the ceiling for the Fed cycle has come down, and that is why we think there is more dollar weakness in the foreign exchange perspective. Financial markets have been roiled by the sudden demise of Credit Suisse and a run on Silicon Valley Bank two weeks ago.
The Australian dollar was sharply weakened from a two-week high of $0.6759 to be back to $0.6707 on Thursday morning.
The New Zealand dollar gave up overnight gains but was firm at $0.6238 in morning trade. The pound went up to $1.2282 on the back of rising as high as $1.2334 overnight. Markets have priced a 25 bp hike from the BoE.
The focus on banking front is now primarily focused on U.S. regional lenders, where there is concern about a contagious run on deposits.
Jerome Powell, Fed Chair, said deposit flows have stabilized in the last week, and smaller lenders said they took some comfort from Yellen's comments that deposit insurance would be considered if there was a contagion risk.
Daniel Kimbell, an executive at the local Passumpsic Bank in St Johnsbury, Vermont, said that it took the anxiety out of the room.
After a series of U.S. Securities and Exchange Commission lawsuits over the use of cryptocurrencies, the price of digital assets fell 3 per cent to $27,360.