Dollar pares losses after central banks raise rates

Illustration shows U.S. dollar banknotes
U.S. dollar banknotes are displayed in this illustration taken, February 14, 2022. REUTERS/Dado Ruvic/Illustration

WASHINGTON, March 23 (Reuters) - The dollar pared earlier losses on Thursday after the U.S. Federal Reserve sounded close to calling time on interest rate hikes, while the Swiss National Bank and Bank of England pushed ahead with further rate increases.

The Fed raised its benchmark funds rate 25 basis points on Wednesday, but dropped language about "ongoing increases" being needed in favor of "some additional" rises.

The Fed's hike was notable given that financial markets have been roiled by wavering confidence in banks globally following a run on Silicon Valley Bank (SIVB.O) two weeks ago and the sudden demise of Credit Suisse (CSGN.S).

"If the banking crisis should meaningfully calm, and inflation remain stubbornly high, that could be a recipe to help revive the dollar because maybe the Fed could go back to fighting inflation at full steam, and not be as concerned about the banking crisis putting a meaningful dent in the economy," said Joe Manimbo, senior market analyst at Convera.

The dollar index , which measures the currency against six major peers, was last up 0.078% at 102.510, set for its first winning day after five straight days of losses.

"There seems to be not necessarily a lot of flight to safety," said Juan Perez, director of trading at Monex USA.

"It's actually more like there's a sense that if the banking world is doing OK, and the banking world is going to be bailed out every time it seems to be in trouble, that things in general are going to survive and be fine."

Markets are betting on just one more quarter-point hike from the Fed, in contrast to Europe where markets see around 50 bps of further tightening.

The gap sent the euro surging to a seven-week high of $1.0930, before moving downward. It was last at $1.08480.

"It seems like the (European Central Bank) may be carrying the most hawkish baton right now because it just seems like they have more rate hikes on the table than other central banks at the moment," said Manimbo.

The Bank of England raised borrowing costs by 25 bps on Thursday, in line with expectations, and said further tightening would be required if there were evidence of more persistent price pressures.

Sterling gained 0.13% against the dollar to $1.22845.

The Swiss National Bank (SNB) also raised its policy rate by 50 basis points as the central bank sought to balance tackling inflation with concerns about financial market turmoil.

The SNB said measures announced by authorities at the weekend regarding Credit Suisse had "put a halt to the crisis."

The dollar fell against the franc after the decision and was last down 0.19% at 0.916.


Currency bid prices at 3:03PM (1903 GMT)

Reporting by Hannah Lang in Washington; Additional reporting by Samuel Indyk in London; Editing by Susan Fenton, Marguerita Choy and Richard Chang

Our Standards: The Thomson Reuters Trust Principles.

Thomson Reuters

Hannah Lang covers financial technology and cryptocurrency, including the businesses that drive the industry and policy developments that govern the sector. Hannah previously worked at American Banker where she covered bank regulation and the Federal Reserve. She graduated from the University of Maryland, College Park and lives in Washington, DC.