By Peter Nurse
Investing.com – The U.S. dollar retreated in early European trade on Thursday and the euro pushed higher as Credit Suisse’s move to bolster its financial position boosted risk sentiment.
At 03:55 ET (07:55 GMT), the , which tracks the greenback against a basket of six other currencies, was trading 0.3% lower at 103.980, giving back some of the previous session’s 1% gain.
Credit Suisse (SES:) announced late Wednesday to borrow as much as CHF 50 billion ($1 = CHF 0.9297) from the Swiss National Bank, strengthening its liquidity position.
Concerns have been growing about the Swiss lender’s financial health for some time as it struggled with large customer inflows following a series of scandals. These came on Wednesday with its share price falling to a record low as its main investor, Saudi National Bank, said it could not provide more funding to the lender.
The news of this credit line boosted sentiment, allaying some concerns about an imminent collapse in the sector, which has been hit hard by the three recent bank failures in the United States.
rose 0.4% to 1.0619, bouncing off the news, ahead of the European Central Bank’s latest policy setting later in the session.
The ECB has previously signaled the likelihood of another 50 basis point interest rate hike as the underlying Eurozone remained elevated, but concerns about possible effects on the banking sector from such a strong rise could prompt policymakers to act more cautiously.
“The market … will take its cue from the European Central Bank today. Going forward with a 50bp rate will be difficult and we should expect more volatility immediately after the … decision,” analysts at ING said in a note.
ECB president Christine Lagarde will also be interesting, as she will surely ask how the central bank can balance efforts to deliver price stability while protecting financial stability.
The question is the same in the US, with interest rate hikes likely to be held back by a whopping 50 basis points next week, due to the strain on the US banking system.
Goldman Sachs raised its estimate of the probability of a US recession to 35% over the next 12 months in response to increased uncertainty about the economic impact of banking stress, up from 25% previously.
Elsewhere, it rose 0.3% to 1.2105, boosted by improved risk sentiment. Also helping were Chancellor Jeremy Hunt’s comments in the Budget on Wednesday that the economy was likely to shrink by 0.2% in 2023, an improvement on the previous forecast for a 1.4% contraction.
fell 0.5% to 132.69, with the yen one of the best performers of the day. The risk-sensitive rose 0.6% to 0.665670, while edge 0.1% lower to 6.9007.