European currencies fell sharply against the dollar after the Credit Suisse shares plunged 24.2% after its biggest investor said it could not increase its stake, citing regulatory issues over the size of its stake.
Concerns about the Swiss entity made the European banking index fell 6.9%, its biggest daily drop in almost 13 months, while causing a sharp decline in European and US bond yieldsdue to investor doubts about whether the Federal Reserve and other central banks will be able to continue raising interest rates to curb inflation.
“The concern with Credit Suisse is whether or not it will become a global banking problem”said Bipan Rai of CIBC Capital Markets in Toronto. “It seems that central banks are between a rock and a hard place on whether to tighten policy to address problems in the real economy and then of course the spillover effect is the fact that there is a financial side to that.” added.
He dollar indexwhich compares the greenback to a basket of six prominent currencies, advanced 0.868%while the euro fell 1.36% to $1.0586.
The US currency gained 1.63% against the Swiss franc, while sterling lost 0.67% to $1.2076. The yen, meanwhile, strengthened 0.58%, to 133.42 units per dollar.
Federal funds futures, which reflect the daily rate banks use to lend money to each other, plunged. The December contract fell to 3.767%, from around 5% a week ago, with a potential rate cut now seen in June.
Source: Ambito
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