Dollar Soft as SVB Continues to Roil Markets

March 13, 2023
  • Markets remain jittery as financial stability concerns remain at the forefront; Fed expectations have downshifted sharply in the wake of the SVB failure
  • ECB tightening expectations have fallen; HSBC will buy the U.K. arm of SVB for one pound; BOE tightening expectations have fallen nonetheless
  • Japan reported weak Q1 BSI business conditions

The dollar remains soft as SVB continues to roil markets. DXY is down for the third straight day and trading near 104.201 after trading at the lowest since February 16 near 103.732 earlier today. We believe this weakness is overdone as Fed tightening expectations should eventually recover. The euro is trading higher near $1.0670 while sterling is trading higher near $1.2055 but we believe these moves are not sustainable. USD/JPY traded at the lowest since February 15 just below 133 earlier today but has recovered slightly to around 133.55. For now, the SVB fallout continues to trump the stronger than expected U.S. data but that simply cannot continue. Tomorrow’s CPI data will likely test the current weak dollar trade.


Markets remain jittery as financial stability concerns remain at the forefront. Despite the raft of measures announced by U.S. policymakers over the weekend that were designed to address these concerns, equity markets remain under pressure, led by financials, while U.S. Treasury yields have plummeted. This has taken a toll on the dollar, which really should be benefiting from a safe haven bid. When markets finally calm, we expect these trades to unwind.

Fed expectations have downshifted sharply in the wake of the SVB failure. We couldn’t disagree more. We do not think SVB impacts Fed policy whatsoever; while financial stability is the Fed’s unofficial third mandate, we believe the inflation fight continues to take precedence. Yes, U.S. policymakers will continue to take actions to limit the fallout but lower interest rates are not the solution. We believe that the SVB failure is a direct consequence of years of easy money. Going back to that is not the right solution and markets need to brace for continued tightening of monetary policy. WIRP suggests a 25 bp hike March 22 is only around 80% priced in, while odds of a larger 50 bp move have been price out from over 70% pre-SVB. A 25 bp hike May 3 is no longer priced in, while two 25 bp cuts are nearly priced in by year-end that would take the Fed Funds target range down to 4.25-4.5%. That would be below the current range of 4.5-4.75% and that is simply not going to happen.


European Central Bank tightening expectations have fallen. This comes despite the hawkish digging in their heels. Holzmann said he wants 50 bp hikes at every meeting through July, which would take the deposit rate up to 4.5%. His comments come ahead of the ECB decision this Thursday when the bank is expected to hike the deposit rate 50 bp to 3.0%. At this point, the only debate is what its forward guidance will be as the hawks and the doves slug it out. As things stand, WIRP suggests odds of a 50 bp hike this week have fallen below 65% after being fully priced in last week. A 25 bp hike May 4 is priced in, while one more 25 bp hike is priced in for September or October that takes the deposit rate up to 3.5% down from 4.0% last week.

HSBC will buy the U.K. arm of SVB for one pound. This comes after emergency meetings were held over the weekend by Prime Minister Rishi Sunak, Bank of England Governor Andrew Bailey and City Minister Andrew Griffith. HSBC CEO Noel Quinn said that the acquisition makes strategic sense as it boosts the bank’s exposure to the technology and life-science sectors. The Bank of England said that “all depositors’ money with SVB UK is safe and secure as a result of this transaction” and added that all SVB services “will continue to operate as normal and customers should not notice any changes” and that “no other UK banks are directly materially affected by these actions.” SVB UK staff will remain employed and the bank will continue to be authorized by UK regulators.

BOE tightening expectations have fallen nonetheless. WIRP suggests a 25 bp hike March 23 is only 75% priced in after being fully priced in last week, while a 25 bp hike May 11 is only about 25% priced in. That final 25 bp hike is nearly priced in that would see the policy rate peak near 4.5%, down from 4.75% last week. Dhingra speaks later today. She has emerged as the leading dove on the MPC so expect dovish comments to hit the tapes.


Japan reported weak Q1 BSI business conditions. Large all industry reading came in at -3.0 vs. 0.7 in Q4, while large manufacturing came in at -10.5 vs. -3.6 in Q4. The manufacturing reading is the weakest since Q2 2014, while the all-industry reading is the weakest since Q1 2022. The report is just the latest in a series of weak economic data and supports the Bank of Japan’s cautious stance. WIRP suggests around 20% odds of liftoff April 28, rising to around 33% June 16 and then nearly 66% for July 28. In addition, the actual tightening path is seen as very mild as the market is pricing in only 10 bp of tightening over the next 12 months followed by only 25 bp more over the subsequent 24 months. That is why we expect any knee-jerk drop in USD/JPY after liftoff to be fairly limited. For now, the pair is trading lower on risk off impulses and a break below 132.90 would set up a test of the February 10 low near 129.80.

Brown Brothers Harriman & Co. (“BBH”) may be used as a generic term to reference the company as a whole and/or its various subsidiaries generally. This material and any products or services may be issued or provided in multiple jurisdictions by duly authorized and regulated subsidiaries.This material is for general information and reference purposes only and does not constitute legal, tax or investment advice and is not intended as an offer to sell, or a solicitation to buy securities, services or investment products. Any reference to tax matters is not intended to be used, and may not be used, for purposes of avoiding penalties under the U.S. Internal Revenue Code, or other applicable tax regimes, or for promotion, marketing or recommendation to third parties. All information has been obtained from sources believed to be reliable, but accuracy is not guaranteed, and reliance should not be placed on the information presented. This material may not be reproduced, copied or transmitted, or any of the content disclosed to third parties, without the permission of BBH. All trademarks and service marks included are the property of BBH or their respective owners.© Brown Brothers Harriman & Co. 2022. All rights reserved.

As of June 15, 2022 Internet Explorer 11 is not supported by

Important Information for Non-U.S. Residents

You are required to read the following important information, which, in conjunction with the Terms and Conditions, governs your use of this website. Your use of this website and its contents constitute your acceptance of this information and those Terms and Conditions. If you do not agree with this information and the Terms and Conditions, you should immediately cease use of this website. The contents of this website have not been prepared for the benefit of investors outside of the United States. This website is not intended as a solicitation of the purchase or sale of any security or other financial instrument or any investment management services for any investor who resides in a jurisdiction other than the United States1. As a general matter, Brown Brothers Harriman & Co. and its subsidiaries (“BBH”) is not licensed or registered to solicit prospective investors and offer investment advisory services in jurisdictions outside of the United States. The information on this website is not intended to be distributed to, directed at or used by any person or entity in any jurisdiction or country where such distribution or use would be contrary to law or regulation. Persons in respect of whom such prohibitions apply must not access the website.  Under certain circumstances, BBH may provide services to investors located outside of the United States in accordance with applicable law. The conditions under which such services may be provided will be analyzed on a case-by-case basis by BBH. BBH will only accept investors from such jurisdictions or countries where it has made a determination that such an arrangement or relationship is permissible under the laws of that jurisdiction or country. The existence of this website is not intended to be a substitute for the type of analysis described above and is not intended as a solicitation of or recommendation to any prospective investor, including those located outside of the United States. Certain BBH products or services may not be available in certain jurisdictions. By choosing to access this website from any location other than the United States, you accept full responsibility for compliance with all local laws. The website contains content that has been obtained from sources that BBH believes to be reliable as of the date presented; however, BBH cannot guarantee the accuracy of such content, assure its completeness, or warrant that such information will not be changed. The content contained herein is current as of the date of issuance and is subject to change without notice. The website’s content does not constitute investment advice and should not be used as the basis for any investment decision. There is no guarantee that any investment objectives, expectations, targets described in this website or the  performance or profitability of any investment will be achieved. You understand that investing in securities and other financial instruments involves risks that may affect the value of the securities and may result in losses, including the potential loss of the principal invested, and you assume and are able to bear all such risks.  In no event shall BBH or any other affiliated party be liable for any direct, incidental, special, consequential, indirect, lost profits, loss of business or data, or punitive damages arising out of your use of this website. By clicking accept, you confirm that you accept  to the above Important Information along with Terms and Conditions.

1BBH sponsors UCITS Funds registered in Luxembourg, in certain jurisdictions. For information on those funds, please see

captcha image

Type in the word seen on the picture

I am a current investor in another jurisdiction