The U.S. dollar was slightly higher in early European trading on Monday, as investors turned to safe havens amid the ongoing banking crisis and ahead of this week’s Federal Reserve policy meeting.
Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.1% higher, reaching 103.470.
The dollar weakened overnight after a group of central banks announced emergency measures to stabilize the financial system.
This was followed by the emergency rescue of Credit Suisse (SIX:CSGN) by the Swiss authorities, who organized the takeover of the banking giant by rival UBS (SIX:UBSG).
However, despite some tensions in the banking sector, the debt market remains active as UBS plans to write off a large sum of Credit Suisse bonds.
Investors are being cautious this week ahead of the Federal Reserve meeting.
Analysts are now predicting that the U.S. central bank will only raise interest rates by 25 basis points, due to the recent turmoil in the banking sector. This is a smaller increase than what was anticipated earlier this month.
However, there is still a lot of uncertainty over what signals the Federal Reserve will send to the markets, given that inflation is still elevated.
The EUR/USD fell by 0.1% to 1.0659 in anticipation of a speech by ECB President Christine Lagarde.
The European Central Bank increased interest rates by 50 basis points last week, demonstrating confidence in the region’s banks. Governing Council member François Villeroy de Galhau said Monday that the decision underscores the ECB’s commitment to maintaining financial stability in the European Union.
The GBP/USD rose by 0.2% to 1.2193, with the Bank of England expected to raise interest rates later this week. However, the central bank will have to carefully balance between the need to fight inflation and the worries about financial turmoil.
The AUD/USD and NZD/USD pairs both traded flat, while the USD/JPY pair fell by 0.5%. The yen benefited from its status as a safe haven currency.
At the Bank of Japan’s March meeting, many board members were in favor of continuing the central bank’s accommodative policy, but some members voiced concern about the distortions in the yield curve that its policy has caused.
The USD/CNY currency pair rose to 6.8891 after the People’s Bank of China unexpectedly cut the reserve requirement ratios for local lenders, which injected more liquidity into the system.