# Dollar pauses for breath as Fed swings into focus
Author:  Pal Sinha, Barnali 
Author URL: https://financedigest.com/author/pal-sinha-barnali
Published: 2023-03-21
Category: NEWS
Category URL: https://financedigest.com/category/news
Meta Title: Dollar steadies in Asia as banking stress clouds rate
Meta Description: Volatile US dollar struggles to rise from five-week lows in light of banking concerns, potentially hindering Fed rate hikes.
URL: https://financedigest.com/dollar-pauses-for-breath-as-fed-swings-into-focushtml

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By Rae Wee

SINGAPORE (Reuters) – The dollar steadied in a holiday-thinned Asia session on Tuesday, though it struggled to lift far from five-week lows as traders reckoned banking stress would keep the Federal Reserve from hiking rates much further, or at all, later in the week.

The greenback ticked about 0.1% higher to $1.0712 per euro and advanced a bit further on the Australian and New Zealand dollars. It held at 131.24 yen, just above a [five-week low](https://www.financedigest.com/oil-slumps-5-to-five-week-low-amid-us-debt-default-fears.html "Oil slumps 5% to five-week low amid US debt default fears") at 130.55.

Volatility in [rates and the broader asset markets has been extraordinary recently,”](https://www.financedigest.com/the-recent-bank-of-england-meeting-the-biggest-rate-hike-recession-warning-and-the-fallout.html "The recent Bank of England meeting, the biggest rate hike, recession warning and the fallout") said John Velis, FX and macro strategist for the Americas at BNY Mellon.

“That has clouded the picture for the March (Fed) meeting and beyond. One consequence has been a substantial repricing … regarding [future rate](https://www.financedigest.com/dollar-falls-after-fed-raises-rates-forecasts-future-hike.html "Dollar falls after Fed raises rates, forecasts future hike") expectations,” he said, with the peak seen at 5.5% only a few weeks ago, against about 4.8% now.

The [dollar has followed those expectations](https://www.financedigest.com/dollar-drops-as-inflation-cools-more-than-expected.html "Dollar drops as inflation cools more than expected") lower, though general nervousness in financial markets has tempered selling.

According to the CME FedWatch tool, markets are pricing in a 25% chance that the Fed will stand pat when it announces its monetary policy decision on Wednesday, with a 75% chance of a 25 basis point [rate hike](https://www.financedigest.com/dollar-hits-one-month-high-against-yen-as-traders-bet-on-fed-rate-hike.html "Dollar hits one-month high against yen as traders bet on Fed rate hike").

On Tuesday, minutes showing Australia’s central [bank had agreed on March 7 to consider](https://www.financedigest.com/5-things-to-consider-when-choosing-a-challenger-bank.html "5 Things to Consider When Choosing a Challenger Bank") the case for a rate pause at its April policy meeting, even before the recent bout of volatility weighed on the Aussie which dropped 0.5% to $0.6686.

News of UBS’s planned takeover of rival [Credit Suisse](https://www.financedigest.com/mitsubishi-ufj-to-postpone-at1-bond-issuance-in-credit-suisse-fallout.html "Mitsubishi UFJ to postpone AT1 bond issuance in Credit Suisse fallout") on Sunday – a shotgun merger engineered by Swiss authorities – gave cause for some relief that the most urgent risks were in hand.

Still, sentiment is fragile, as investors grapple with [bank stress that has mushroomed from weakness in regional](https://www.financedigest.com/danich-local-and-regional-banks-launch-mobile-wallet-powered-by-nets-new-hce-and-tokenisation-platform.html "DANICH LOCAL AND REGIONAL BANKS LAUNCH MOBILE WALLET POWERED BY NET’S NEW HCE AND TOKENISATION PLATFORM") U.S. [banks to the humbling of a global](https://www.financedigest.com/world-bank-warns-global-economy-could-easily-tip-into-recession-in-2023.html "World Bank warns global economy could easily tip into recession in 2023") lender in a matter of days.

Markets remain nervous, but the rapidity of policymakers’ response to the evolving [banking sector](https://www.financedigest.com/sterling-rises-as-receding-bank-sector-worries-lift-sentiment.html "Sterling rises as receding bank sector worries lift sentiment") risks is heartening,” said Alvin Tan, head of Asia FX strategy at RBC Capital Markets.

Also on Sunday the Federal Reserve, in coordination with [central banks](https://www.financedigest.com/central-banks-hike-rates-again-but-a-pause-is-coming.html "Central banks hike rates again, but a pause is coming") elsewhere, announced it would offer daily currency swaps to ensure there would be plenty of U.S. dollars to go around.

“There has been pretty modest demand for U.S. [dollars at the Fed](https://www.financedigest.com/oil-up-2-as-dollar-weakens-on-small-us-fed-rate-hike.html "Oil up 2% as dollar weakens on small US Fed rate hike") swap lines, so that is a positive sign in and of itself,” said Carol Kong, a currency strategist at Commonwealth Bank of Australia.

But there continues to be some [signs of stress](https://www.financedigest.com/4-reasons-your-finance-employees-are-showing-signs-of-stress.html "4 reasons your finance employees are showing signs of stress") in funding markets … so currencies will continue to be pretty cautious,” she added.

Sterling slipped 0.1% to $1.2260. The U.S. dollar index rose 0.06% to 103.40.

The approval of International Monetary Fund financing for Sri Lanka sent the beaten-down Sri Lankan rupee about 7% [higher on the dollar](https://www.financedigest.com/dollar-jumps-as-powell-flags-higher-terminal-rate.html "Dollar jumps as Powell flags higher terminal rate").

(Reporting by Rae Wee; Editing by Jamie Freed and Bradley Perrett)


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