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1. The dollar index pared early gains to dip below 102 in March, as the banking crisis that began with Silicon Valley Bank led to markets revising earlier predictions about continued rate hikes by the Fed. After a bank run caused SVB’s collapse, regulators moved to combine it with a regional peer, Signature Bank, allaying fears about a broader bank run contagion. The Fed introduced measures to boost liquidity while shoring up confidence in the banking sector, guaranteeing all deposits at both banks. While the Fed continued hiking rates by 25bps in March, markets remain unconvinced of the Fed’s inflation-fighting resolve. Markets have priced in rate cuts later this year despite the Fed’s insistence otherwise. With investors now more focused on the US economy’s strength than the risk of a complete banking crisis, the Fed’s dovish stance relative to its peers could continue weighing on the dollar, negating the dollar’s attractiveness as a safe haven.
2. The euro rallied to a high of $1.09 against the dollar, on the back of a hawkish ECB and softer economic data in the US. The ECB raised rates by 50bps in March, even as once-towering Credit Suisse was forced into a takeover by its larger Swiss rival UBS to avoid further turmoil in the global banking system. The ECB stressed that European banks remained resilient, while markets viewed the ECB as having further room to raise rates, supporting the euro. At the same time, weaker than expected economic data from the US is further adding to the euro’s strength.
3. The pound gained against the dollar to reach $1.24, not seen since early February, after persistent inflation in the UK economy drove BoE Governor Bailey to deliver hawkish remarks towards the end of the month. After inflation re-accelerated from 3 straight months of decline, the BoE opted to raise rates by 25bps. Policymakers no longer expect a recession in the second quarter of this year, while the labour market continues to show strength, giving the BoE more reason to continue tightening if inflation remains high, providing support to the pound.
4. Commodity currencies pared losses in March to end the month mostly flat, as markets took in a flurry of data from different central banks. The aussie remained near $0.67 to the dollar, as inflation declined in Australia. Coupled with news that the RBA was open to a rate pause in April, the aussie might continue experiencing bearish pressure in the short-term. Meanwhile, the kiwi rose against the dollar, just shy of $0.63, as markets anticipate the RBNZ to continue hiking rates by 25bps at its next meeting to tackle stubborn inflation. The loonie also strengthened slightly against the dollar, with USD/CAD touching a low of $1.35 towards the end of March. Investors expect the Canadian economy to continue growing this month, after positive retail sales data in the middle of the month.
5. Brent crude slumped below $70 per barrel in the middle of the month before paring some losses to hover below $80 per barrel, as shortages in supply temporarily erased fears of a slowdown in demand from this month’s banking crisis. Traders remain optimistic of a rebound in demand from the Chinese recovery, but some are cautious after sluggish demand for air travel in China. Gold rallied above $2000 per ounce before paring some gains, after the banking crisis in the US and Europe triggered a flight to safety among investors. After the Fed’s 25bps rate hike this month, markets are not expecting the Fed to raise rates much further, keeping the price of gold supported for the near-term future.
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