Emerging market currencies edge higher after SVB collapse

Emerging market currencies edged higher after a sharp drop in the dollar amid increased bets that the US Federal Reserve will immediately pause its aggressive monetary policy following the collapse of Silicon Valley Bank.

MSCI’s gauge of emerging market currencies rose 0.6%, hitting a one-month high earlier in the day. The dollar index retreated sharply to a one-month low, with the Fed no longer expected to raise rates at its March 22 meeting.

EM currencies also saw their most positive session since the start of the year. The South African rand gained 0.92%, while the Russian ruble strengthened 0.82% against the dollar.

US authorities have said that failed Silicon Valley Bank clients will have access to all their deposits from the start of the week. Regulators also created a new facility to allow US banks to access emergency funds.

Autumn collapse of SVB weighs on banking shares

On Monday, the two-year euro swap spread reached its highest mark since late autumn after SVB’s bankruptcy stirred investors to alter their assessment of the banking sector, which affected the value of banking stocks.

The spread between the two-year euro swap and the two-year German bond widened by about 20 to 83 basis points.

Global bond yields fell to their lowest since at least the world financial crisis, forcing swap spreads to widen and banking stocks to fall the next day.

This indicates lessening exposure to higher-risk emerging market investments, which have been met with resistance due to a strong dollar and limited financial prospects in the US. The shutting down of SVB is the largest banking collapse since the 2008-2009 financial crisis.

US policy figures moved quickly to restore confidence in the US banking system after Friday’s second massive bank failure.

Asian markets were also higher.

The Turkish lira was steadily flat. Statistics showed that the country’s current account deficit widened to $9.87 billion in January. This result is the highest level in four decades of available data due to continued increases in energy taxes and gold imports.