Dollar index remains weaker ahead of Fed’s decision

Traders continued to sell the greenback as the recent upswing faded. On Monday, the dollar index was modestly lower, falling toward last week’s lows.

The banking crisis is not over yet

UBS said on Sunday that it will acquire Credit Suisse for around $3.3 billion, with the support of the Swiss government, in an effort to relieve pressure on the global banking system.

After this decision, the Federal Reserve and other major central banks opened dollar liquidity lines to bolster struggling institutions, ensuring that the entire banking system had access to dollars if necessary.

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In the aftermath of Sunday’s merger, UBS’s announcement that it will write down around $17 billion of Credit Suisse bonds will likely cause more market volatility on Monday.

As a result of the recent chaos, the so-called FRA/OIS spread, a stress indicator for the US banking industry, increased to 18.2 basis points (bps) from 12 basis points (bps) the previous week, marking its largest level since December 22.

Another rate hike, or is the Fed done?

On Tuesday and Wednesday, the Federal Open Market Committee (FOMC), the US central bank’s rate-setting body, will hold its most recent meeting. However, as a result of the failure of SVB and upheaval in the banking industry, the Fed might halt its rate rises and maintain current interest rates.

According to fed funds futures data compiled by CME Group, most traders still anticipate a 25 basis point (bps) raise. In a bid to combat skyrocketing inflation, the Fed has raised interest rates by a total of 450 basis points (bps) at the quickest rate in decades since it began tightening monetary policy one year ago.

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Later this week, we will see data on February sales of new and existing homes. Existing house sales likely increased to 4.18 million units in February, up from 4 million in January, the lowest level since October 2010. As mortgage rates climb and the home market weakens, sales have declined for twelve months. In January of the previous year, they numbered 6,340,000. Nevertheless, new house sales are anticipated to have decreased to 648,000 units, down from the higher-than-anticipated 670,000 units sold in January.

Technically speaking, the next area of support could be at previous lows near 103.35, and if not held, the dollar index could decline toward February lows at 101. Alternatively, bears will be defending the 105 mark and, afterward, the swing highs near 105.70.