With Credit Suisse’s new low, European currencies plummeted dramatically on Wednesday.
The euro, pound, and Swiss franc fell sharply against the U.S. dollar after Credit Suisse (CSGN.S) shares fell over 30% after its biggest investor warned it could not offer additional assistance.
Fears over the Swiss lender drove the European banking index (.SX7P) to its lowest since early January and caused a currency market sell-off.
After SVB’s bankruptcy last week, most major currencies traded stably against the dollar earlier in the day. Investor fears about U.S. banking system contagion had eased.
Euro fell 1.75% to $1.0574 at 1305 GMT, its worst daily decrease since March 2020.
The safe-haven Swiss franc fell 0.8% to 0.9218 per dollar after gaining 3% weekly.
Sterling fell 0.7% to $1.2077 after finance minister Jeremy Hunt’s budget statement to parliament. The Sterling rose 1.2% against the euro.
Hunt said the Office for Budget Responsibility’s current predictions show Britain’s GDP would drop by 0.2% in 2023, but it won’t enter a recession (OBR).
The OBR’s prior November projection predicted a 1.4% decrease in 2023.
“This morning’s Credit Suisse announcement is doing all of the damage in FX markets as European bank equities take another battering today,” said Monex Head of FX Analysis Simon Harvey.
“The sell-off in these equities merely raises worries over financial stability again, which is having a knock-on impact in European government bond and swap markets as the potential of an ECB with tighter restrictions returns,” he added.
Banking upheaval has affected money market bets on ECB rate rises.
On Thursday, markets expect a 60% eurozone rate rise of 25 basis points. They had a 90% possibility of a 50-bps boost earlier.
Markets expect a 50% likelihood of no change and a 50% chance of a 25 bps Fed hike next week.
104.59.
Comment Template