Sterling moved a bit lower, staying close to an almost seven-week high against the dollar, after data showed Britain recorded a budget deficit of 16.68 billion pounds ($20.4 billion) in February, far above expectations in a Reuters poll. "It seems that after a couple of weekends of pushing policy support and certain (Treasury) officials suggesting that they'll do whatever it takes to guarantee deposits, what it suggests to me is that hikes can go on," said Mazen Issa, senior FX strategist at TD Securities in New York. banks that might be suffering deposit runs if they pose a risk of contagion. Treasury Secretary Janet Yellen told bankers on Tuesday that she is prepared to intervene to protect depositors in smaller U.S. "(The Fed) should signal that inflation is still the focus here, but obviously properly address what has been done, and highlight what they can do to further prevent any further contagion beyond First Republic," said Edward Moya, senior market analyst at OANDA. lender First Republic (FRC.N) tumbled nearly 50% on Monday on fears it will need a second rescue. Sentiment is fragile as investors are concerned over the outlook for the banking sector after shares of U.S. The dollar has followed those expectations lower, though general nervousness in financial markets has tempered selling.
The peak for the Fed's benchmark overnight interest rate was seen at 5.5% only a few weeks ago, against about 4.8% now. Markets are pricing in an 85% chance of a 25-basis-point rate hike when the Fed announces its monetary policy decision on Wednesday. Investors' focus has moved to a slew of central bank meetings due this week after days of volatility in markets caused by worries over the stability of the global banking sector. WASHINGTON, March 21 (Reuters) - The dollar pared earlier losses and sterling fell on Tuesday as traders reckoned banking stress could keep the Federal Reserve and the Bank of England from hiking interest rates much further, or at all, later in the week.
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