Credit Suisse Woes Threat to ECB Rate Hike and EUR Trade

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After a brief period of calm following the collapse of Silicon Valley Bank, Credit Suisse disclosed "material weaknesses" in their financial reporting controls and ongoing customer outflows, setting off another bout of instability across global assets. Credit Suisse's biggest investor, Saudi National Bank, also noted that it could not offer more financial support to the troubled Swiss Bank leading to shares in Credit Suisse falling more than 20%. Switzerland’s central bank has come to the rescue though, saying it is ready to provide financial support to Credit Suisse, if necessary, helping the shares to recover about half of its losses on Wednesday, and rising from its record low under $2.00.

There is now growing concern over wider instability in the banking sector. This led to expectations that the Federal Reserve might slow down or pause hiking rates. Although, on Wednesday, the dollar rose due to safe haven buying, while European currencies sharply declined. The Euro, which had seen a 0.02% gain over a month, fell 1.4%, and the market is pricing in a 60% chance of a 25-basis-point hike in euro zone rates on Thursday, compared to a previous 90% chance of a 50-bps hike. The ECB’s interest rate decision is due on Thursday at 9:15am EDT.

Elsewhere, the dollar rose 1.8% against the Swiss franc, while sterling traded down 0.8%. The Japanese yen strengthened 0.58%. As investors sought safe havens, gold prices continued their recent rally, with gold up 0.8% and silver up 0.3%. Conversely, oil prices fell by more than $5 a barrel.