Risk conditions continue to dominate.
Overall risk conditions dominated markets on Monday. Fear was firmly in control early in the session with the banking sector under pressure after the Credit Suisse rescue with investors fretting over the move to wipe out AT1 bondholders. There was a steady recovery during the day with some relief that there was no significant dollar demand at the latest central bank auctions.
US equity futures traded lower ahead of the US open, but there was a gradual recovery with the S&P 500 index posting net gains amid a rally in most regional US banks. European bourses also managed to close in positive territory.
Controversy surrounding the Credit Suisse rescue had a significant impact in curbing demand for the Swiss franc during the day.
Markets will remain on alert for policy leaks through the Wall Street Journal with the latest commentary stating that the bank faces a very tough decision this week. Futures markets indicated a 75% chance that the Fed Funds rate will be increased by 25 basis points to 5.00%.
Reserve Bank of Australia minutes stated that there had been a further discussion on re-examining the case for a pause in the rate-hike process and expectations of an April rate hike dipped further.
The latest UK data recorded a government borrowing requirement of £16.7bn for February and the highest February deficit on record due to substantial energy support spending, but debt interest payments edged lower over the year.
Canada will release the latest data on consumer prices on Tuesday. Consensus forecasts are for the headline year-on-year rate to decline to 5.4% from 5.9% due to a favourable base effect with the core rate edging lower to 4.8% from 5.0%.
The Euro lost ground after the European open and EUR/USD dipped to lows near 1.0630. The Euro rallied as the European banking sector recovered ground. The dollar lost wider traction against European currencies. EUR/USD rallied to above the 1.0700 level and settled just above this level on Tuesday.
There was further volatile yen trading as equities and yields dominated. USD/JPY slumped to lows near 130.50 before a rebound to highs around 131.80 and settled around 131.25.
The Swiss franc lost ground amid a lack of confidence in the Swiss financial sector. EUR/CHF posted net gains to just above 0.9950 with USD/CHF settling near 0.9300.
Sterling overall was again broadly resilient during the day even when equities were under pressure. GBP/USD found support around 1.2170 before posting solid gains to highs around 1.2280. GBP/USD settled around 1.2250 on Tuesday with some selling on the latest government borrowing data.
Commodity currencies rallied as equities recovered and the US dollar lost ground. AUD/USD rallied back above the 0.6700 level, but failed to hold this level after the RBA minutes and traded around 0.6685. USD/CAD retreated to 1.3665 before settling around 1.3690.