Investors are betting on an end to sharp rate hikes in the United States following the collapse of Silicon Valley Bank
Investors are betting that the prospect of deeper interest rate hikes in the United States has faded after the crisis caused by the collapse of Silicon Valley Bank.
The pound rose more than a cent against the dollar yesterday as traders confirmed their expectations that the Federal Reserve will announce another big hike next week.
SVB’s demise was blamed on the plummeting value of its US bond holdings, caused by aggressive rate hikes.
Rate relief: The pound rose more than a cent against the dollar yesterday as traders confirmed their expectations that the Federal Reserve will announce another big hike next week
Now, markets are betting that the turmoil caused by the collapse will give rate setters pause before making further hikes in an attempt to contain inflation.
This will boost many US stocks even if bank stocks fall.
“The run on the banks was precipitated by overly hawkish Fed policy,” said Jay Hatfield, founder and chief executive of Infrastructure Capital Management.
‘The case of the bull is that it will finally make sense of them [the Fed] and they will stop raising rates.
Traders now see a 50% chance that the Fed won’t raise rates at all next week.
This compares to last week when a quarter-percentage-point hike was fully priced in, with a 70% chance of a half-point hike, following recent hawkish comments from the Fed Chairman. , Jerome Powell.
Yields on two-year US Treasuries – which move inversely to prices – fell sharply yesterday and are heading for their biggest one-day drop since 1987.
UK financial markets also cut bets on a Bank of England rate hike in March, with a 60% chance of a quarter-point rate hike now seen this month, down from around 90 % last week.
Yields on UK ten-year bonds, known as gilts, have seen their biggest drop since 2009, barring the gilt market’s recovery from the chaos caused by last autumn’s mini-budget .
Eurozone bond yields also fell as markets also priced in a modest rate hike from the European Central Bank.
Jane Foley, senior FX strategist at Rabobank, said walking away from further increases could create a “credibility problem” for the Fed in its fight against inflation.