Dollar steadies on improved banking confidence; First Citizens to buy SVB By Investing.com

By Peter Nurse

Investing.com – The US dollar was steady in early European trade on Monday as optimism grew that the US banking turmoil can be contained, although confidence in the sector remained shaky.

At 03:15 EST (07:15 GMT), the greenback, which measures the greenback against a basket of six other currencies, was trading largely unchanged at 102.745, just above a seven-week low seen last week.

News released early Monday that First Citizens BancShares (NASDAQ:) had agreed to take on Silicon Valley bank deposits and loans calmed market nerves surrounding the health of smaller US banks.

This came on the heels of both US Treasury Secretary Janet Yellen and Federal Reserve Chairman Jerome Powell trying to reassure the market that the US banking system remains sound.

However, deposits at small banks fell by $120 billion in the week ending March 15, while borrowing jumped by $253 billion, indicating continued severe pressures.

Minneapolis Federal Reserve Chairman Neel Kashkari said on Sunday that recent stresses in the banking sector and the possibility of a continuation of the credit crunch have brought the United States closer to recession.

This has the market pricing in largely as interest rates rise in May, before falling in the summer, at the expense of the dollar.

“There is pricing in about 90 basis points of cuts, starting in July, and vague communications from the Fed do very little to reliably resist these cuts,” ING analysts said in a note.

Elsewhere, it rose to 1.0762, after falling 0.6% on Friday when shares of German banking giant Deutsche Bank (ETR) fell on contagion fears.

European Central Bank President Christine Lagarde told European Union leaders on Friday that the banking sector in the eurozone remains healthy due to the strong regulatory regime.

Traders will be watching the March release later in the session, for clues to corporate sentiment in the eurozone’s largest economy.

It rose 0.2%, to 1.2257, after falling 0.5% on Friday, while the risk-sensitive index rose 0.3%, to 0.6663.

It rose 0.4% to 131.25, with the safe-haven yen losing a degree of appeal, while it rose 0.2% to 6.8785 after data showed industrial profits fell sharply in the first two months of 2023, indicating a slow economic recovery in China.