Stocks slump; Aussie dollar surges following unexpected boost. Global equities sank on Tuesday as caution crept ahead of the Federal Reserve’s policy meeting, although Europe’s biggest bank’s record earnings lifted banking stocks.

After the central bank surprised markets with an interest-rate hike, the Australian dollar rose, and short-term government bond yields rose after the Treasury Department said it could run out of cash by early June.

The Fed is expected to raise interest rates by a quarter of a point on Wednesday. Still, money markets show investors think this will be the last hike due to uncertainty over the government’s debt limit and the banking sector after a third U.S. lender failed in two months.

No one wants to do much before the FOMC decision. “It’s pre-Fed meeting positions,” TraderX strategist Michael Brown said.

“Equities look to be retracing a bi today, the fact that we couldn’t convincingly break 4,200 (on the S&P) is a bit of a concern for the bulls and may strengthen the dollar marginally,” he added.

S&P 500 futures fell 0.1%, as European blue chips fell. The STOXX 600 (.STOXX) dipped 0.25% after HSBC (HSBA.L) reported record earnings and BP (BP.L) cut its share repurchase program.

After the Reserve Bank of Australia’s decision to raise interest rates, the Aussie dollar rose 1.3% in the currency markets.

“One of the things that sticks out to me is that they’re still saying they might need to increase interest rates,” said Commonwealth Bank of Australia strategist Joe Capurso.

“So, as well as the increase today, that’s supporting the Aussie dollar,” he added. He suggested a “reasonable chance” the Federal Reserve will follow a similar strategy on Wednesday.

The dollar declined 0.1% versus a basket of major currencies, while the euro remained at $1.0974.

Markets were tense. After Treasury Secretary Janet Yellen warned that the Treasury could run out of money by June 1, President Joe Biden summoned the four top congressional leaders to the White House next week.

On Tuesday, U.S. credit default swaps, representing the cost of insuring against default, reached their highest level in years, while one-month Treasury bill rates approached their 2007 peak.

TraderX’s Brown said the likelihood of the U.S. government running out of money is minimal, but traders are nonetheless prepared.

“The problem is, if you’re a trader, or a risk manager, and you haven’t hedged appropriately and this time, it does turn out to be different, you’re going to be having a very difficult conversation with your boss,” he warned.

“You almost have to hedge for something that won’t happen, just in case.”

PacWest (PACW.O) and Citizens Financial (CFG.N) shares fell 0.3-0.5% after First Republic Bank (FRC.N) sold its assets to JPMorgan Chase (JPM).

Even after a strong response, investors still worry about what’s ahead.

Jamie Dimon, JPMorgan’s CEO, told analysts, “This part of the crisis is over.”

Brent oil futures remained unchanged at $79.32 a barrel after falling below $80 on Monday amid global economic concerns. Copper rebounded for a fourth day after losing almost 2% last week.