Credit Suisse woes knock euro, sterling, Swiss franc

CURRENCIES in Europe fell sharply on Wednesday (Mar 15) following Credit Suisse’s tumble to a new low renewed worries about the continent’s banking sector in the aftermath of Silicon Valley Bank’s collapse.

Shares of Credit Suisse fell around 30 per cent after its biggest investors said it could not provide more backing.

The Swiss lender’s woes led the wider European banking index to its lowest level since early January and triggered a sharp sell-off in the currency markets.

The euro fell 1.2 per cent to US$1.0605, sterling dropped 0.8 per cent to US$1.2065, and the Swiss franc slid 1.2 per cent to 0.9251 per US dollar.

“This morning’s Credit Suisse news is doing all of the damage in FX markets, as European bank stocks take another beating today,” said Simon Harvey, head of FX analysis at Monex.

“The sell-off in these stocks only raises concerns over financial stability again, which is having a knock-on effect in European government bond and swap markets as the prospect of a more restricted ECB (European Central Bank) comes back into view.”

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Money markets have changed their bets for the ECB rate hikes amid the European bank turmoil. They are now pricing in a 50 per cent chance of a 50 basis point (bp) hike in eurozone rates from the ECB on Thursday. Earlier in the day, they were pricing in a 90 per cent chance of such a move.

Markets are also pricing in a 60 per cent chance of a 25 bps increase from the US Federal Reserve next week.

The safe-haven US dollar rose sharply, with the US dollar index surging 0.9 per cent to 104.65. The index measures the greenback against six peers.

Investors are also awaiting the British government’s budget announcement later on Wednesday. Chancellor of the Exchequer Jeremy Hunt is due to make a budget speech to parliament at around 1230 GMT. He is expected to announce how he will try to prop up the world’s sixth-biggest economy.

“We doubt anything in the budget will be sterling-negative – after all, taxation levels are near the limit – but equally we do not see it as especially sterling-positive either,” said Chris Turner, global head of markets at ING. REUTERS