Dollar Falls Amidst Speculations on Federal Reserve’s Interest Rate Hike

The dollar stumbled on Monday as investors nervously awaited the Federal Reserve’s next move on interest rates amidst the recent collapse of Silicon Valley Bank.

President Joe Biden tried to ease concerns by assuring Americans that their deposits in Silicon Valley Bank and Signature Bank were safe after the government’s swift response. But it looks like investors are not completely convinced as they continue to speculate about the Fed’s future monetary policies.

Federal Reserve’s Additional Funding Program Fails to Impress Dollar Traders

In a bid to calm the markets, the Federal Reserve announced additional funding through a new Bank Term Funding Program. This will offer loans to depository institutions backed by Treasury securities and other assets they hold. However, it seems that investors were not impressed as the dollar index fell by 0.70%, measuring the currency against six other currencies.

In fact, the dollar’s short-term Treasury yields tumbled as well, with the two-year note’s yield plunging 50.8 basis points to 4.080%, marking the most significant one-day drop since the financial crisis of 2008.

The Federal Reserve’s funds futures also declined as the expectation of the terminal rate slid to 4.05% in December from above 5% on Friday.

As we look ahead to Tuesday’s release of the consumer price index (CPI) data, we can only hope that the dollar will finally find its footing. For now, investors are hanging on to every word from the Federal Reserve, hoping for reassurance that their investments won’t sink with the dollar.