LONDON—European currencies fell sharply on Wednesday after Credit Suisse’s tumble to a new low renewed worries about the European banking sector following Silicon Valley Bank’s collapse.
Credit Suisse shares fell around 20 percent after its biggest investors said it could not provide more backing.
The Swiss lender woes led the wider European banking index to its lowest level since early January and triggered sharp sell off in the currency markets.
The euro fell 1.2 percent to $1.0605, sterling dropped 0.8 percent to $1.2065 and the Swiss franc slid 1.2 percent to 0.9251 per dollar.
“This morning’s Credit Suisse news is doing all of the damage in FX markets as European bank stocks take another beating today,” said Simon Harvey, Head of FX Analysis at Monex.
“The sell-off in these stocks only raises concerns over financial stability again, which is having a knock-on effect in European government bond and swap markets as the prospect of [a] more restricted ECB (European Central Bank) comes back into view,” he said.
Money markets have changed their bets for the ECB rate hikes amid the European bank turmoil.
Markets are now pricing in a 50 percent chance of a 50 basis point hike in eurozone rates from the ECB on Thursday. Earlier in the day, they were pricing in a 90 percent chance of such a move.
Markets are pricing in a 60 percent chance of a 25 bps increase from the U.S. Federal Reserve next week.
UK Budget
Investors are also awaiting for the British government’s budget announcement later on Wednesday.Finance minister Jeremy Hunt, due to make a budget speech to parliament at around 1230 GMT, is expected to announce how he will try to prop up the world’s sixth-biggest economy.
“We doubt anything in the Budget will be sterling negative—after all taxation levels are near the limit—but equally we do not see it as especially sterling positive either,” said Chris Turner, global head of markets at ING.
