FOREX-Dollar slips as banking turmoil snares markets

By Herbert Lash and Amanda Cooper

NEW YORK/LONDON, March 17 (Reuters) - The dollar fell on Friday as further declines in the shares of Credit Suisse and First Republic Bank rattled markets fearful of contagion and increased concerns that a recession lies ahead because of the impact of tighter monetary policy.

An early recovery in European stocks ran out of steam as investor sentiment remained fragile after a week of turbulence following the failure of Silicon Valley Bank on March 10.

U.S. banks have sought a record $153 billion in emergency liquidity from the Federal Reserve in recent days, while the $54 billion loan for Credit Suisse CSGN.S and $30 billion lifeline for First Republic FRC.Nfailed to halt their stock declines. Credit Suisse fell 8% in Europe and First Republic tumbled 30%.

The dollar index =USD, a measure of the dollar against six other currencies, slid 0.604% as traders waited for the Fed's two-day policy meeting that is expected to end with a one-quarter percentage point hike in interest rates on March 22.

Contracts for fed funds futures show a 61.3% probability that the Fed will raise rates by 25 basis points, according to CME's FedWatch Tool. Futures also show the Fed will have cut rates by July in a sign recession fears are mounting as the U.S. central bank tightens monetary policy to fight high inflation.

Whether the banking turmoil of the past week leads to an immediate recession is hard to say, said Mazen Issa, senior FX strategist at TD Securities in New York.

"It probably increases the probability that you do have a recession and perhaps it increases the probability that you may have a hard-landing scenario, a more severe recession dynamic," he said.

"Once you have one regional bank go down, households question whether or not the regional banks are in trouble, that's a natural human emotion to feel," he said.

Banking troubles revived memories of the 2008 financial crisis, when dozens of institutions failed or were bailed out with billions of dollars of government and central bank money.

Three smaller U.S. lenders, including First Republic, have had regulators and other banks step in to prop them up, while in Europe, Credit Suisse became the first major global bank since the financial crisis to get an emergency lifeline.

"There is a wait and see approach as to what will happen with the U.S. economy," said Ed Moya, senior market analyst at OANDA in New York. "Now we're not debating a‘soft landing, no landing.’ We're debating is it a mild or severe recession?"

The euro EUR= rose 0.66% to $1.0675.

The rescue of First Republic on Thursday initially boosted risk appetite on Friday as concerns about global banks eased, making way for surges in the Australian and New Zealand dollars.

Sterling GBP= last traded at $1.2192, up 0.70%, while the dollar CHF= fell 0.39% against the Swiss franc. Earlier this week, the franc plunged the most against the dollar in one day since 2015, when the Swiss central bank loosened its currency peg.

The Japanese yen JPY=, which tends to benefit in times of extreme market volatility or stress, strengthened 1.48% versus the greenback to 131.77 per dollar.

Japan's Ministry of Finance, Financial Services Agency and Bank of Japan officials met on Friday evening to discuss financial markets.

Masato Kanda, vice finance minister for international affairs, told reporters after the trilateral meeting that the government, the central bank and the banking watchdog would coordinate to ensure the stability of the financial system.

The Australian dollar AUD=, which often outperforms when investors are feeling optimistic, rose 0.81% to $0.671.

Currency bid prices at 3:09 p.m. (1909 GMT)

Description

RIC

Last

U.S. Close Previous Session

Pct Change

YTD Pct Change

High Bid

Low Bid

Dollar index

=USD

103.7400

104.3900

-0.60%

0.242%

+104.4400

+103.6800

Euro/Dollar

EUR=EBS

$1.0677

$1.0611

+0.62%

-0.36%

+$1.0686

+$1.0611

Dollar/Yen

JPY=EBS

131.7650

133.7800

-1.49%

+0.51%

+133.7350

+131.5550

Euro/Yen

EURJPY=

140.68

141.91

-0.87%

+0.27%

+142.2000

+140.1700

Dollar/Swiss

CHF=EBS

0.9255

0.9293

-0.38%

+0.12%

+0.9299

+0.9241

Sterling/Dollar

GBP=D3

$1.2194

$1.2110

+0.69%

+0.82%

+$1.2200

+$1.2103

Dollar/Canadian

CAD=D3

1.3721

1.3722

+0.00%

+1.28%

+1.3773

+1.3679

Aussie/Dollar

AUD=D3

$0.6708

$0.6658

+0.79%

-1.56%

+$0.6724

+$0.6650

Euro/Swiss

EURCHF=

0.9883

0.9859

+0.24%

-0.12%

+0.9911

+0.9841

Euro/Sterling

EURGBP=

0.8754

0.8760

-0.07%

-1.02%

+0.8782

+0.8745

NZ Dollar/Dollar

NZD=D3

$0.6271

$0.6196

+1.20%

-1.24%

+$0.6277

+$0.6192

Dollar/Norway

NOK=D3

10.6960

10.7700

-0.68%

+9.00%

+10.7660

+10.6700

Euro/Norway

EURNOK=

11.4219

11.4211

+0.01%

+8.84%

+11.4412

+11.3507

Dollar/Sweden

SEK=

10.4853

10.5049

+0.29%

+0.74%

+10.5515

+10.4430

Euro/Sweden

EURSEK=

11.1910

11.1582

+0.29%

+0.42%

+11.2054

+11.1239

World FX rateshttps://tmsnrt.rs/2RBWI5E

SVB Financial seeks bankruptcy protection as banking turmoil persists

ECB watchdog sees no Europe contagion after US, Swiss bank rescues

First Republic shares fall despite unprecedented Wall Street rescue deal

GRAPHIC-Banking worries send US markets on dizzying ride

Major US banks inject $30 bln to rescue First Republic Bank

ANALYSIS-Is the backlash over SVB collapse a threat to 'woke' investments?

ANALYSIS-SVB's climate tech clients face humbling funding questions

ANALYSIS-Investors stick to bets on early end to ECB hikes as uncertainty grows

GRAPHIC-Markets tumble then recover amid bank crisishttps://tmsnrt.rs/3mNboDp

GRAPHIC-Americans opt to keep their money with the bankshttps://tmsnrt.rs/3LrAFxq

GRAPHIC-Majority of Americans oppose a bank bailouthttps://tmsnrt.rs/408dP1Y

Global currencies vs. dollar IMGhttps://reut.rs/2xKnuUn

Odds point to 25 bps Fed rate hike next weekhttps://tmsnrt.rs/3Tn335y

(Additional reporting by Rae Wee in Singapore; Editing by Nick Zieminski and Mark Potter)

((amanda.cooper@thomsonreuters.com; +442031978531; Twitter: https://twitter.com/a_coops1;))

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.