European currencies fell en masse in Wednesday (15/March) trading because of the bad news that befell Credit Suisse. That is one of the Blue Continent's largest investment banks.
Market participants are worried that this is a sign of the banking crisis that broke out in the US last week will spread around the world. EUR/USD plunged more than 1.5%.
That pair came to a low level of the 1.0560s. The GBP/USD slumped around 0.7% to touch the 1.2040s, while USD/CHF skyrocketed to the above 0.9250s threshold.
Meanwhile, the US dollar index or DXY immediately rebounded around 1% to above the 104.50s. That is due to its role as a safe haven currency.
Saudi National Bank Stops It’s Financial Assistance
Mass media reported that Credit Suisse's largest investor, Saudi National Bank, has stated it will not provide any more financial assistance. One of it’s major shareholders, Harris Associates, is also known to have sold its shares over the past few months.
Credit Suisse shares fell immediately following the outpouring of the discordant news, along with other European banking stocks. It sought to dismiss the nasty rumours by asserting that "financial results for 2022 and previous years are accurate" as per PwC's audit.
Credit Suisse's chairman, Axel Lehmann, also asserted that they are regulated that they have a strong capital ratio, a very strong balance sheet to differentiate its position with Silicon Valley Bank.
However, the market panic continues. The Credit Suisse news yesterday morning inflicted all the damage on the FX market, as European bank stocks took another hit today.
50 BP Rate Hike Chance from ECB dropped
The fact above was said by Simon Harvey, a Head of FX Analysis at Monex Europe. The sell-off of these stocks raised concerns over financial stability again, which had a continued effect on the European government swap.
It also has an effect on bond markets as the prospect of a more constrained ECB was again seen. In this situation, market participants are worried that European Central Bank (ECB) officials will not be able to fulfill their "rate hike" promises.
The chances of a rate hike by 50 basis points in the next ECB meeting immediately dropped from 90% to 50%. European currency exchange rates fell yesterday.
It was due to the bad rumours about the financial condition of Credit Suisse, one of the largest banks in the region. However, the situation began to improve at the start of trading in the European session on Thursday (16/March).
Switzerland Offers a Hand to Help
The good situation is a response to a supportive statement from the Swiss Central Bank (SNB). EUR/USD was observed to strengthen by 0.4% to a range of 1.0620 and GBP/USD rose by 0.3% to the 1.2090s.
Their respective moves have not been able to fully make up for yesterday's slump, but there are signs of recovery. Meanwhile, USD/CHF receded nearly 1 percent.
That is as market demand for the United States dollar eased as a safe haven in this turmoil. The SNB in the early hours of this morning announced that the condition of the Swiss financial markets remained healthy.
SNB Denied Rumors about Credit Suisse
They asserted that all banks in Switzerland are required to at least meet or exceed the minimum retirement of Basel standards. So that the negative effects of the crisis or shock will be well absorbed.
The SNB also denied rumours about Credit Suisse. They are expressing readiness to support Credit Suisse through additional liquidity if needed.
The problem of certain banks in the US does not pose a risk of direct contagion to the Swiss financial market. The strict capital and liquidity requirements for Swiss financial institutions have ensured their stability.
Credit Suisse is inline with the capital and liquidity requirements which are imposed on systemically essential banks. If necessary, the SNB may give liquidity to the CS.
