The US dollar index or DXY fell more than 1% to a range of 104.00 in New York session trading yesterday night (10/March). The market was disappointed in response to the emergence of signals of a slowdown in inflation.

That could be seen in the latest US employment report package, so the greenback lost its momentum in the forex market. Meanwhile, new bad news electrifies the American banking sector.

Most of the details of yesterday’s night United States employment report were disappointing. Average hourly revenue growth was only 0.2% for month over month.

That missed expectations and was lower than the 0.3% increase in the previous period. The U.S. unemployment rate also rose from 3.4% to 3.6%, though consensus expects the figure to stagnate. 

US Salary Inflation is Slowing Down

The number of Non-farm Payrolls rose by 311k in February 2023. It was surpassing the consensus estimate of 205k, making it the only bright spot in the US employment report this time. 

However, payroll data for January was instead revised down from 517k to 504k. The Average hourly income signals that salary pressures are not accelerating. It was said by Andrzej Skiba of RBC Global Asset Management.

It is a major concern of the market that the forces of the labor market should cause meaningful pressure on pay inflation. That was also preventing the overall inflation rate from being moderated.

These signs of sluggish inflation in the labor sector blunted the hawkish rhetoric uttered by Fed Chairman Jerome Powell a few days ago. That was putting pressure on the US dollar as well. 

Silicon Valley Crisis Appears 

In addition, the US dollar was also surprised by the emergence of new bad news related to Silicon Valley Bank (SVB). Silicon Valley Bank Bank (SVB) is one of the largest commercial banks in the United States.

It is as well as the largest bank in Silicon Valley's technology innovation center. It yesterday announced it plans to sell USD2.25 billion worth of shares to increase the bank's funding.

That was done after suffering some heavy losses in its investment projects. However, CNBC today reported that the SVB attempt failed.

SVB's failure to raise its capital sparked panic among investors where they worried about the domino and systemic effects of the crisis. Banking sector stocks plummeted, including well-known banks such as Barclays and HSBC. 

The Causes of SVB Crisis

Shares of startup companies are also worrisome. It is as SVB was the banking partner for nearly half of the technology companies and healthcare companies listed on the exchange last year. 

A number of experts highlight the management of the SVB portfolio as the culprit of the problem. However, there are also those who think that the SVB crisis occurred due to very aggressive interest rate hikes. 

Consequently, market expectations about the Fed's interest rates also decreased. It seems that Banks are the victims in rate hikes, as said by Ray Wang.

Ray Wang is a Chief Executive of Constellation Research, and he shared that opinion to BBC. Nobody in Silicon Valley Bank and in many other places thinks that these rate hikes will last this long.

US Jobless Claim Increased 

Ray also thinks that's what happened where most parties have the wrong bet so far. The probability for a 50 bps rate hike next week has risen from 10% to nearly 50%.

That was according to previous futures market data. But after the SVB news, Fed Funds Futures held the odds that 50 bps hike below 50%. This was stated by Christian Gattiker, Head of Research at Julius Baer.

Elsewhere, The number of United States jobless claims recorded an increase of 21k and reached a total of 211k in the week ended March 4, 2023. 

Not only was the increase greater than consensus estimates, it was also the most in the last five months. This surge in unemployment claims data prompted some traders to question speculation of a more aggressive Fed rate hike.