Currency market opening after CS deal calms signs of yen decline

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(Bloomberg) — The Japanese yen fell and the Swiss franc rose after Switzerland’s government struck a deal to rescue Credit Suisse Group AG to allay investor fears about instability in the global financial system.

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A quiet start to currency markets came as headlines about UBS Group AG’s deal to buy its rival bank and Sweeters executives were pushing for the deal to go through. However, traders are bracing for a volatile week as they monitor developments in the US and European banking sectors and await the Federal Reserve’s interest rate decision on Wednesday.

The franc erased its early losses against the dollar amid reports the Swiss National Bank also agreed to offer a $100 billion liquidity line to UBS, paying about 3 billion francs ($3.2 billion) in stock for the acquisition. Will do However, with the currency losing some of its haven appeal amid the recent turmoil, traders turned to the yen as their main target in their flight to safety.

UBS will buy Credit Suisse stock at CHF0.76 per share

“While the market digests the news and trading remains in this emergent phase, the Swiss franc is unlikely to act as the cleanest haven expression,” said Simon Harvey, head of FX analysis at Monex. “Instead, we will monitor credit-default swap spreads and the share price of UBS when discussing the franc in the immediate term.”

The Japanese yen slipped 0.5% against the dollar and 0.9% against the euro. The Swiss franc extended early losses to 0.4% against the greenback, while Europe’s common currency added 0.3%. Risk-sensitive currencies such as the Australian and New Zealand dollars also climbed.

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UBS’s all-share deal is priced at a fraction of Credit Suisse’s $8 billion valuation on Friday and it remains to be seen whether it can stave off a crisis of confidence. Meanwhile, California officials are working to break up the collapsed Silicon Valley bank. Multiple pressure points in the financial system are roiling global markets and leaving the Federal Reserve with a difficult choice between continuing its fight against inflation or taking a pause to prioritize financial stability.

UBS to buy Credit Suisse in historic deal to end crisis

Volatility skyrocketed last week as fears spread about the health of the global financial system amid the effects of the Fed’s annual campaign to fight inflation. Worries about potential contagion drove investors to haven assets and forced a radical rethink about how tight the Fed — and other central banks — would be able to tighten policy.

Front-end Treasury yields fell by than 20 basis points each day as investors poured cash into US securities. US bank stocks fell heavily and technology stocks offered some relief.

At the end of trading last week, swaps markets indicated the Fed would opt to go ahead with a quarter-point interest rate hike at its meeting on Wednesday, although pricing suggested it was likely to lapse. tightening circle there. At the height of concerns of bank stress earlier in the week, traders cut their odds of a quarter-point hike to less than half, while some banks, including Goldman Sachs and Barclays, changed their rate calls and now expect a rate hike. Don’t expect.

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–Alice Gladhill and Michael G. With the help of Wilson.

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