Banking turmoil continues to hamstring the US dollar

Despite a bumper week for economic data, currency markets remain in limbo. While the dollar regained some ground today after a(nother) stronger-than-expected US non-farm payrolls report, it has been under pressure for most of the week as ongoing problems at some US regional banks continue to cast a shadow over the outlook for the US economy and put significant downward pressure on expected interest rates in the US. At this point, money markets discount a sizeable chance of the Fed cutting rates this summer. That may be justified by the risks around the banking sector – financial sector instability has led to abrupt policy shifts in the past. But is plainly at odds with continued resilient labour market data and the stance conveyed by the FOMC this week, which re-iterated its intention to keep the policy rate at or above current levels until 2024.