After the sharp declines suffered by the US dollar, following the Federal Reserve's decision on Wednesday to raise interest rates. If it reached 101 levels, and witnessed sharp declines that gave a breather to gold prices as well as oil and currencies, the euro rose, refreshed by the European Central Bank's strong tone regarding continuing to raise interest rates.
However, the US dollar returned strongly on Friday, to rise, standing near 103 levels, and curbing the rise of gold.
The decline came after news of the crises facing Deutsche Bank (ETR: DPWGn), the largest in Germany, as insurance expenses rose on the bank's failure to pay, which hit European stocks.
Since the Euro is the largest component of the US Dollar Index, the dollar has seen a rebound after strong liquidations.
The Fed also came back from its period of silence, and started talking about how they see the current situation, how they are dealing with the banking crisis, and presenting their views on the strength of the US economy, and the possibility of a rate hike in the future.
The most important statements:
There are no signs of worsening financial pressures (according to the FOMC statement), which is why they raised interest rates.
Silicon Valley is an isolated case, and it hasn't undermined confidence in the US banking system, according to three regional Fed chiefs. Other members ruled out that the Silicon Valley crisis would be a contagion between banks.
James Bullard of St. Louis said: Silicon Valley Bank was an extraordinary bank. Unlike any bank in the US.. our tools will power the economy over the spring and summer, and there is not much to worry about financial stress.
Bullard set the rate range at 5.50-5.75%, expecting another 25 basis point hike. Bullard sees interest rates going up 3 times this year. While the official estimates of the Federal Reserve to raise interest only once.
Atlanta Fed President Rafael Bostick said the Fed's decision generated much controversy and was not an easy one.
He continued that the banking system is sound and the Fed's efforts will bear fruit.
Bostick confirmed that inflation will continue to rise.
While Barkin said that the banking sector is very stable, that is why the Fed raised the interest rate, because the case for raising it was compelling.
The most important expectations of banks for the direction of the US dollar
HSBC (LON:HSBA) economists see near-term volatility in the dollar's movements given the uncertainty and continued development of banking sector crises.
Given the turmoil, experts believe that the path of the dollar will be more bearish than upward.
While Scotia Bank analysts believe that expectations of a Fed rate cut will inevitably hit the dollar and push it towards lower levels.
As despite the Fed's positive statements, the markets are expecting the Fed to reduce the interest rate later this year, to control the unstable financial conditions.
