The dollar recovers but remains affected by the fall in bond rates

(New York) The dollar regained a little height against the euro on Thursday after a more moderate increase in the main key rate of the European Central Bank (ECB), but remains penalized by the decline in US bond rates.

Around 3:55 p.m. (Eastern time), the greenback took 0.43% against the single currency, at 1.1015 dollars for one euro.

For Joe Manimbo, of Convera, this gain is essentially due to the ECB’s decision to only raise its key rate by a quarter of a percentage point, after six consecutive increases of at least half a percentage point. point.

The ECB noted that the tightening since last summer was already having a “strong” impact on credit conditions. “This is a signal that the ECB could be closer to a pause than initially anticipated, which would limit the fuel needed for a stronger euro,” said Joe Manimbo.

For traders, the likelihood of another quarter-point rate hike at the next ECB Governing Council meeting in mid-June is diminishing.

But the advance of the “greenback,” a nickname for the dollar, has been dampened by the easing of US bond rates.

The yield on 2-year US government bonds, more volatile than its 10-year equivalent and considered more representative of market expectations regarding the monetary trajectory of the Fed (the US central bank), stood at 3.76%, against 3.80% the previous day at the close.

This decline more particularly cost the dollar against the yen, which is very sensitive to changes in US bond rates.

The greenback lost 0.39% against the Japanese currency, at 134.18 yen to the dollar.

Although Federal Reserve (Fed) Chairman Jerome Powell on Wednesday ruled out any cut in the Fed’s key rate in the short term, investors continue to expect a majority of four cuts of a quarter point each by the end of the month. end of the year.

“The market is telling us the Fed made a mistake, they’re wrong,” observed Brad Bechtel of Jefferies. “When you hit a peak in monetary tightening, the market is looking right away when” the central bank is going to change direction and cut rates, he added.

“Now that credit conditions are tightening and we want to know which (US) bank has not managed the risk of (rising) rates well,” he continued, which has been the case. Silicon Valley Bank (SVB), whose failure kicked off the banking crisis, “the market is trying to get the Fed to cut rates sooner than they would like. »

Thursday was thus the occasion of a new bloodbath for several American regional banks on Wall Street.