Gains in safe-haven purchasing as Credit Suisse sparks greater banking fears
(Adds Comment, Fresh Prices) By Herbert Lash & Joice Allves NEW YORK/LONDON – Wednesday’s dollar gain was fueled by safe-haven purchases after Credit Suisse’s stock plunged following disclosures in its financial report that revealed “weaknesses”. This raised investor concerns about a potential global banking crisis. Credit Suisse shares fell 24.2% against dollar after the disclosure of “weaknesses” in its financial reporting. This was due to regulatory issues regarding the holding size. Credit Suisse’s 2022 Annual Report published Tuesday highlighted “material weaknesses” in its internal controls of financial reporting. The report also stated that the bank had not stopped customer outflows. The European banking index plunged 6.9% due to concern about the Swiss bank. It was also the biggest drop in one day in nearly 13 month. Investors are unsure whether the Federal Reserve or other central banks can continue to raise interest rates to reduce inflation. Bipan Rai, North America head for FX strategy at CIBC Capital Markets Toronto, said that Credit Suisse’s concern is whether this will become a global banking crisis. It seems like central banks are stuck between two extremes: tightening policy to address real-economy issues and then spillover effects from the financial side. The dollar index measures the U.S. currency relative to six other currencies and rose 0.868% while the euro dropped 1.36%, to $1.0586. This year, dollar strength was driven by higher Treasury yields and other government debt. Sterling fell 0.67% to $1.2076, while the dollar rose 1.63% against Swiss Franc. The Japanese yen increased 0.58%, to 133.42 USD. This is two-fold. One is a flight to quality and safe-haven purchasing, while the other is a repricing rate hike expectations,” stated Kevin Flanagan from WisdomTree, head of fixed-income strategy. He stated that the Fed has seen a drastic change in the prices of its actions, which is coupled with actual buying. The reason the Fed’s focus is on the 2-year note is because of this. Fed funds futures, which represent the overnight rate banks lend each other, have fallen sharply. The December contract fell to 3.767%, down from 5% about a week ago. A potential rate cut can now be seen in June. The rate of interest for two-year Treasury Notes, which move in accordance with expectations, dropped 26.1 basis point to 3.964%. CME’s FedWatch Tool indicated that futures prices were priced for a 60% chance that the Fed will not raise rates at its March 21-22 policy meeting. Torsten Slok, chief economist of Apollo Global Management, said that “the Fed will not increase interest rates next Wednesday” because regional banks play a crucial role in U.S. Credit extension. During the banking crisis, Europe’s money markets changed their views on rate hikes by The European Central Bank. Simon Harvey, Monex’s Head of FX Analysis, said that Credit Suisse news this morning is causing all the damage in FX markets. “European bank stocks are taking another beating today,” he added. “The sell-off of these stocks only raises concern over financial stability again, and this is having a knock on effect in European government bonds and swap markets as a prospect of ECB (European Central Bank), becoming more restricted comes back into sight,” he stated. The market is now pricing in a 60% chance that the euro zone rate will rise by 25 basis points on Thursday. They had priced in a 95% chance of a 50-bps increase earlier in the day. Price of currency bids at 2:59 PM (1859 GMT). Description RIC Pct Low Bid YTD Change Session Dollar Index 104.6100 10.3747 1.3690 +0.89% +1.36% +$1.0760 USD/Yen 1.3747 1.3690 +0.42% +1.3814 $0.6683 Australian Dollar/Dollar 1.3747 1.3690 +0.42% +1.3814 1.3690 +0.52% +$1.2181 USD/Canadian 1.3747 11.3713 Euro/Sweden 11.3948 Euro/Sweden11.192 11.3948 Euro/Sweden 111.938.