Interbank Market News Scan: Inflation at 6% and the dollar index takes a hit.

Bankers came to the King and said, “We can help spread your influence and power by distributing your currency; by helping to coin the energy extracted from your subjects while validating these actions by funding your political economy. All we ask in return is to earn a spread on the loans, currency, and currency-denominated products that we sell.”

And the King said, “Done.”

Yesterday, President Joe Biden made it clear that investors in Silicon Valley Bank would not be bailed out by the federal government, although all of the bank’s depositors would be made whole. As banks are at the core of the political economy and given the spread of the news throughout media, Mr Biden’s attempts to assure Americans that their deposits are safe is to be expected. But what of his assurance to the markets?

Around 4:10 pm on 10 March 2023, MarketWatch reported the dollar index at 104.63. As of 8:46 am, 14 March 2023, the dollar index was at 103.85, a fall of .007%.

Reviewing data from OANDA, the respective broker spreads for the dollar when compared against the British pound, the euro, and the Canadian dollar remained the same between 10 March 2023 and 14 March 2023. The spreads widened, however, for the dollar against the Mexican peso and the Japanese yen.

I don’t pretend to be a currency strategist but so far it does not appear that Mr Biden has to be too concerned today about volatility in the interbank market.

Nor does he have to be too concerned today about inflation. According to data from the U.S. Bureau of Labor Statistics, the year-over-year consumer price index increased by six percent with consumer prices climbing 0.4% during the month of February. Prices are still increasing, but I expect Mr Biden to claim a victory in the fight against rising prices by taking note of the slow-down in the rate of change.

I would counsel the “king” by reminding him of his duty to the markets. Future actions should keep in mind that there is a promise to the banks/brokers that their spreads will be protected.

Alton Drew

14 March 2023

Alton Drew

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