Euro, Swiss franc recover a little as market mood improves, traders await ECB

LONDON (Reuters) – The euro and Switzerland rose as markets reacted positively to the Swiss central bank extending aid to Credit Suisse ahead of a difficult meeting for European Central Bank (ECB) rate setters. The franc fell somewhat on Thursday.

The euro rose 0.28% to $1.0608. On Wednesday, it fell 1.4% as the focus of concerns over the banking sector spread from the collapsed US-based Silicon Valley bank to the much larger Credit Suisse.

The Swiss bank (CSGN.S) said it would borrow up to $54 billion from the Swiss National Bank to boost liquidity and investor confidence after its share price plunged 30% on Wednesday. After that, some calm returned to the market.

This helped the Swiss franc rise, with the dollar at one point falling more than 1% against the franc to 0.9232, reversing part of Wednesday’s 2.15% gain.

Paul Jackson, global head of asset allocation research at Invesco, said problems within the sector make investors particularly nervous because of the nature of the banking system, such as its interconnectedness.

“It’s like walking through the forest at night, and when you get nervous and hear a squirrel or a bear, you react like a bear.”

But the news that the Swiss National Bank backed Credit Suisse calmed the mood, and some said they expected to hear encouraging comments from the European Central Bank later on Thursday.

“Since the SNB stepped in to provide reassurance, we have already seen a recovery,” said Joel Kruger. I expect it to come true,” he said. , Market Strategist, LMAX Group.

Focus on ECB

The ECB, which was the main event of the day before the banking sector riots broke out, will meet on Thursday to set interest rates, with the decision to be taken at 2:15 pm CET (1315 GMT).

The central bank almost promised a 50 basis point rate hike at this meeting after its last meeting. Recent market turmoil has cast doubt on these expectations.

“If recent inflation data clearly confirms that the ECB committed a 50 basis point rate hike in March, the ongoing turmoil in the financial sector could put policy makers at risk,” said ING FX strategist Francesco Pezole. It raises questions about whether the Fed will raise rates.”

Derivatives market prices now point to just over a 50% chance of a 50 basis point increase, up from the start of the week.

Pesole said it was also unclear how the euro would react to the ECB’s decision.

“If the ECB’s 50bp hike takes place in an environment where markets are dwindling concerns about the banking sector thanks to support from the SNB, this will in fact be a move to Frankfurt for the health of the eurozone banking system. It could be read as a confidence signal, and could ultimately lift the euro,” Pessole said.

“If the ECB were to force a rate hike in a still fragile environment for the European banking sector, the impact on EUR/USD would actually be can be negative.”

Elsewhere, the safe-haven Japanese yen continued to favour, even as markets calmed down a bit.

The dollar last fell 0.69% against the yen at 132.5, down nearly 4% from the US currency’s almost three-month high on March 8, before the market got its tailwind.

The British pound remained stable at $1.20415 while the Dollar Index, which tracks the unit against six major currencies, fell 0.2% to 104.45.

Reporting by Alun John, London, with additional reporting by Joice Alves, London and Rae Wee, Singapore. Edited by Kim Coghill, Emelia Sithole-Matarise, Hugh Lawson

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