Banking sector concern spread to Europe yesterday with Credit Suisse in the spotlight. The bank has been troubled for a number of years now and yesterday’s almost 25% drop (the largest on record) reignited fears of a potential collapse.
These developments pushed markets into full risk-off mode. The greenback was up 2% against the euro by lunchtime whilst the GBPUSD pair plunged almost 1.8%. GBPEUR was hoisted higher, hitting the €1.14 mark. Equity markets were battered with the German Dax down over 500 points at its worst levels. The sentiment did improve late in the day as rumours surfaced about support from the Swiss National Bank and the country’s regulator, FINMA. By the close of the New York session, it was clear these rumours would come to fruition. The SNB provided Credit Suisse with a $54 billion backstop to help shore up its liquidity issues.
Today’s session is all about the European Central Bank announcement. Madame Lagarde finds herself in a tough spot. Given the current global turmoil, is it a wise idea to continue to hike rates knowing it may produce more stress across key financial institutions? At 13.15 we will find out whether the ECB opts for a 50bps rise as forecast. Stay tuned!
Written by Viv Savani. 7:11am, March 16th 2023
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