Dollar Index Experiences Minor Growth
At 04:05 ET (08:05 GMT), the Dollar Index, measuring the greenback's value against six other major currencies, saw a 0.1% increase to 103.025. The index had previously dipped below 103 for the first time since mid-February.
Banking Sector Turmoil Affects U.S. Dollar
The ongoing turbulence in the banking sector has negatively impacted the U.S. dollar. Traders now anticipate that this stress will prevent the Federal Reserve from significantly increasing or raising rates during the week.
Fed's Efforts to Ease Funding Stress
On Sunday, the Federal Reserve introduced a seven-day dollar swap to alleviate funding stress in global markets. However, the use of this facility has been limited, contributing to financial stress and negatively affecting the dollar, according to Deutsche Bank's chief international strategist, Alan Ruskin.
Upcoming Interest Rate Decision and Balance Sheet Update
In addition to Wednesday's interest rate decision, where a 25 basis point hike is currently favored, markets are eager to hear updates on the Fed's $8.6 trillion balance sheet, which has begun to expand again.
European Currency Movements and Interest Rates
The EUR/USD increased to 1.0716 before the March German ZEW economic sentiment survey was released, which is predicted to drop to 17.1 from 28.1 due to banking unrest. The European Central Bank (ECB) raised interest rates by 50 basis points last week, but uncertainty in the banking sector could restrict the number of authorized hikes this year.
Bank of England's Upcoming Meeting and Inflation Expectations
The GBP/USD fell 0.2% to 1.2251 before the Bank of England's meeting on Thursday, expected to result in the 11th consecutive interest rate hike. However, a recent survey indicates that the British public's inflation expectations have declined, suggesting the central bank may be nearing the end of its hiking cycle.
Australian and Asian Currency Performance
The AUD/USD traded 0.4% lower at 0.6690 after the Reserve Bank's March meeting minutes revealed that policymakers were contemplating an eventual pause in interest rate hikes. The USD/JPY rose 0.4% to 131.85, with the yen relinquishing some of its recent safe-haven status gains, while the USD/CNY fell 0.1% to 6.8743.