US Rate Hikes in Jeopardy?

  • US Bank failures have sparked speculation that the Fed might adopt a less aggressive policy tightening, with Goldman Sachs even suggesting a pause 
rate hikes

Over the past few days, we have seen the second and third largest bank failures in US history. A question remains whether we have seen the last of these failures and what other ripple effects could occur. 

In the currency markets, the dollar index dropped below 104, reaching a three-week low for the third consecutive session. Signature and Silicon Valley Bank’s failure has sparked speculation that the US Federal Reserve might adopt a less aggressive policy tightening approach at its next meeting, with Goldman Sachs even suggesting a pause. Money markets now indicate a more than 70% probability of a 25-basis-points hike next week, a sharp reversal from the previous week. However, a better-than-anticipated US jobs report published on Friday supports the argument for further rate increases. Investors are anticipating important US inflation data on Tuesday, which will provide insight into the central bank’s rate-hike trajectory. 

Some of the best performers in the face of the US dollar decline have been risk-sensitive currencies such as the Australian (+1.40%) and New Zealand dollars (+1.45%). The British pound is also on the leader board, appreciating +1.3%. Perhaps suggesting a vote of no-confidence in traditional banking, Bitcoin has experienced an 18% surge over the last 24 hours, surpassing $24,200, its most significant daily gain in almost a month. Elsewhere, Gold is up +2.4% to $1,911, its highest level in over a month. 

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