Dollar softens, euro gains after Credit Suisse improves risk sentiment

 Dollar softens, euro gains after Credit Suisse improves risk sentiment

Investing.com - The U.S. dollar weakened in early European trading Thursday, while the euro gained after Credit Suisse added to its financial position, boosting risk sentiment.

At 03:55 ET (07:55 GMT), the dollar index, which tracks the greenback against a basket of six other currencies, was trading 0.3% lower at 103.980, giving back some of the 1% gain from the previous session.

Credit Suisse (SIX:CSGN) late Wednesday announced plans to borrow up to CHF50 billion ($1 = CHF0.9297) from the Swiss National Bank to bolster its liquidity position.

Concerns have been growing for some time about the financial health of the Swiss lender, which has faced heavy customer outflows in the wake of a series of scandals. This came to a head on Wednesday when its share price fell to a record low as its main investor, the National Bank of Saudi Arabia, said it was unable to provide further funding to the lender.

News of the credit line has brightened sentiment and eased fears of an immediate collapse in the sector, which was hit hard by the three recent bank failures in the United States.

EUR/USD rose 0.4% to 1.0619, responding to news ahead of the European Central Bank's final monetary policy setting meeting later in the session.

The ECB had previously indicated the likelihood of another 50 basis point rate hike as eurozone fundamentals remain strong, but concerns over the potential impact of such a large hike on the banking sector may prompt policymakers to act more cautiously.

"The market will be ... be guided by the European Central Bank today. Another 50 basis point rate hike will prove difficult, and we should expect more volatility immediately after the ... Decision, expect more volatility," analysts at ING, said in a note.

ECB President Christine Lagarde's press conference will also be of interest, as she will surely be asked how the central bank can balance price stability efforts with protecting financial stability.

The same question arises in the U.S., where the Federal Reserve is likely to hold off on raising interest rates by an above-average 50 basis points next week, given the strain on the U.S. banking system.

Goldman Sachs has raised its estimate for the likelihood of a U.S. recession in the next 12 months to 35%, responding to increased uncertainty about the economic impact of the banking stress, which had previously been 25%.

Elsewhere, GBP/USD rose 0.3% to 1.2105, helped by improved risk sentiment. This was helped by Chancellor of the Exchequer Jeremy Hunt's comments in Wednesday's budget that the economy is expected to contract by 0.2% in 2023, an improvement from the previous forecast of 1.4%.

USD/JPY fell 0.5% to 132.69, with the yen among the day's top performers. The risk-sensitive AUD /USD rose 0.6% to 0.665670, while USD/CNY fell 0.1% to 6.9007.