Fear, uncertainty over bank turmoil sparks flight to safe haven currencies
Renewed fears of a global banking crisis have seen traders flocking to the US dollar and Japanese yen, which are considered safer bets in times of turmoil. (File photo: Reuters/Dado Ruvic)
SINGAPORE: The safe haven US dollar and Japanese yen found support on Thursday (Mar 16) from renewed fears of a global banking crisis, after contagion from the implosion of United States-based Silicon Valley Bank spread across the Atlantic to Swiss bank Credit Suisse.
Credit Suisse said on Thursday that it would borrow up to US$54 billion from the Swiss National Bank to shore up liquidity and investor confidence, after its shares on Wednesday plunged as much as 30 per cent, which prompted the Swiss central bank to throw a financial lifeline to the embattled lender.
While the news helped to stem some heavy selling in Asia trade, market sentiment remained fragile as worries mount that the recent stress unfolding across banks in the US and Europe could be a harbinger of a widespread systemic crisis.
That sent traders flocking to the greenback and yen, which are considered safer bets in times of turmoil, keeping the two currencies buoyed on Thursday.
The yen jumped more than 0.5 per cent to extend Wednesday's 0.6 per cent gain, and last stood at 132.80 per dollar.
Against the Swiss franc, the dollar pared some of its previous session's 2.15 per cent surge - the largest daily gain since 2015 - but kept the Swissie pinned near a one-week low.
"Now, Credit Suisse has the clout of (the) Swiss National Bank covering its back, which is a central bank that doesn't mess around in the time of crisis," said Matt Simpson, senior market analyst  at City Index.
"So ultimately, I think this is a good thing for market sentiment. I'm just not sure if or when investors will draw the same conclusion with all the emotion in the air."
Credit Suisse, which is battling to recover from a string of scandals that have undermined the confidence of investors and clients, was the latest casualty to be caught up in a crisis of confidence after the collapse of SVB last week.
SVB's shutdown last Friday, followed two days later by the collapse of Signature Bank, forced US President Joe Biden to rush out assurances that the financial system was safe and prompted emergency US measures giving banks access to more funding.
"Given the elevated uncertainties and concerns about broader financial contagion, the dollar, as well as the yen, will be the main beneficiaries because of safe haven demand," said Carol Kong, a currency strategist at the Commonwealth Bank of Australia (CBA).
Elsewhere, the euro was nursing deep losses on Thursday, last rising 0.27 per cent to US$1.0607, after tumbling 1.4 per cent in the previous session. Likewise, sterling gained 0.14 per cent to US$1.20725, having fallen close to 0.9 per cent on Wednesday.
Against a basket of currencies, the US dollar index was last 0.16 per cent lower at 104.48, paring some of its roughly 1 per cent gain in the previous session.
Investors remained on tenterhooks as they await further clarity on how widespread the fallout could be, with rescue measures from authorities doing little to soothe heightened fears thus far.
The focus has also turned to how central banks will navigate their paths on future rate hikes, with policymakers left in a bind on how much further they should raise rates to stem inflation without triggering a financial sector shakeout.
The European Central Bank (ECB) meets later on Thursday and is due to announce its interest rate decision following the meeting.
Ahead of that, traders have quickly moved to scale back their bets on a 50-basis-point rate hike, as the rout in Credit Suisse shares fanned concerns about the health of Europe's banks.
Two supervisory sources told Reuters that the ECB had contacted banks on its watch to quiz them on their exposure to Credit Suisse.
"There is certainly a risk that the ECB will not follow through with its pre-commitment of a 50-basis-point hike because of financial stability concerns," said CBA's Kong.
"It will definitely be a tough call for any major central bank to stick with its tightening path."
Elsewhere, the risk-sensitive Australian and New Zealand dollars were struggling to make headway after having slid close to 1 per cent each on Wednesday.
The Australian dollar was last 0.23 per cent higher at US$0.6637, while the New Zealand dollar fell 0.42 per cent to US$0.6162, further pressured by weak economic data released on Thursday which showed New Zealand's economy shrinking in the fourth quarter.
