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Due to concern about banking sector turmoil, currencies considered safe havens such as the dollar and the yen enjoyed great demand, especially after the transfer of the impact of the collapse of the “Silicon Valley” bank in the United States to “Credit Suisse” in Switzerland. The latter announced at the beginning of Asian trading on Thursday that it would borrow up to 50 billion Swiss francs from the central bank after its shares fell and the bank’s largest shareholder stopped supporting. The closure of Silicon Valley prompted US President Joe Biden to take emergency measures to make more funding available to banks.
Amid fears of a global banking crisis, currencies considered safe havens, such as the dollar and the yen, were popular Thursday, after the impact of the collapse of Silicon Valley Bank in the United States across the Atlantic to Credit Suisse in Switzerland.
In the latest blow to investor confidence in the financial sector, Credit Suisse shares plunged on Wednesday by as much as 30%, after the bank’s largest shareholder said it could not offer it more support.
And the decline in the shares of the troubled lender prompted the Swiss National Bank (the central bank) to provide it with a financial bailout, in an unprecedented move. Credit Suisse announced in early Asian trading Thursday that it would borrow up to 50 billion Swiss francs ($54 billion) from the central bank.
Traders flocked to traditional safe-haven currencies, boosting the dollar and yen, amid growing fears that pressures emerging between banks in the United States and Europe could herald a broader crisis.
The yen jumped about 0.5% in early Asian trading, and recorded 132.73 in the latest trading against the dollar, after achieving Wednesday’s gains of 0.6%.
Against the Swiss franc, the dollar lost some of the rise it recorded in the previous session and reached 2.15%, which is the largest daily gain since 2015, but it kept the Swiss franc close to its lowest level in a week.
“We have some new turmoil in the European banking sector, and things are still very volatile at the moment,” said Carol Kong, currency analyst at the Commonwealth Bank of Australia.
“Given the extreme uncertainty and concerns about a broader financial contagion, the dollar and yen will be the main beneficiaries due to the demand for safe havens,” she added.
The euro compensated for some of its losses in early Asian trading, as it rose in the latest transactions by 0.04% to $1.0582, after falling 1.4% in the previous session.
The pound sterling increased 0.18% to $1.20775, after falling about 0.9% yesterday, Wednesday.
The dollar index, which measures the performance of the US currency against a group of currencies, fell 0.07% to 104.58, after jumping about 1% in the previous session.
And Credit Suisse, which is struggling to recover from a series of scandals that have undermined the confidence of investors and customers, is the latest victim of the crisis of confidence after the collapse of the US bank, “Silicon Valley” last week.
The shutdown of Silicon Valley on Friday, followed by the collapse of Signature Bank two days later, prompted US President Joe Biden to rush to assert that the financial system was safe and prompted emergency measures in the United States to make more funding available to banks.
However, investors remain deeply concerned, as they await more clarity on the extent of the fallout.
The focus is also shifting to how central banks will move to raise interest rates in the future, as policy makers are in a dilemma over how far to raise rates to curb inflation without causing a shake-up in the financial sector.
The European Central Bank meets Thursday and is due to announce its interest rate decision after the meeting.
