Investors are waiting for the decisions of the American Central Bank, and it is not known whether it will stop raising interest rates or whether it will adhere to the monetary tightening policy to combat inflation.
European Central Bank President Christine Lagarde said Wednesday that the recent tensions surrounding the banking sector pose “new risks” to the economy, at a time when the bank still has “a way to go” to combat high inflation.
Lagarde told a forum in Frankfurt that financial turmoil linked to several recent bank failures had created “new downside risks” for the economy. She added that the institution’s scenario of reducing inflation to about 2 percent in 2025, if confirmed, shows that there is “a path that must be taken to contain inflationary pressures.”
In a related context, the dollar reached its lowest level in five weeks on Wednesday, ahead of the conclusion of the US central bank’s monetary policy meeting, as investors await a clearer picture on the path that the central bank is likely to take in the wake of global banking turmoil.
Investors are awaiting the decisions of the US Central Bank, and it is not known whether it will stop raising interest rates or whether it will adhere to the monetary tightening policy to combat inflation.
The dollar index, which measures the performance of the US currency against six major currencies, reached 103.19, up slightly from its lowest level in five weeks of 102.99, which it touched last night. The euro reached $1.0770, settling near a five-week high of $1.0789, which it hit overnight.
On Sunday, the central banks of the United States, Switzerland and other countries announced a coordinated move to provide more liquidity to reassure markets in the midst of a crisis of confidence in the banking system.
The extraordinary measure comes shortly after the acquisition of its rival, Credit Suisse, by Swiss bank UBS, in a process coordinated by the Swiss government with the aim of restoring confidence in the banking system.
Institutions decided to promote “swap lines,” mechanisms that give foreign central banks easier access to dollars.
Central banks will thus increase the pace of operations in dollars, and the statement indicated that “these operations, which have been conducted so far on a weekly basis, will become daily as of Monday, March 20, 2023. And they will remain at this rate until at least the end of April.”
CME’s Videowatch showed that markets now expect a 15 percent chance that the Federal Reserve will not raise interest rates, with a roughly 85 percent chance that it will do so by 25 basis points. Just a month ago, the market was 24 percent expecting a 50 basis point rate hike.