UBS to 3 billion Swiss francs acquisition of Credit Suisse, safe-haven cooling dollar short-term or under pressure

On Monday (March 20), the Asian market, the dollar index narrowly oscillated, currently trading around 103.82. On Friday, the dollar index fell 0.66%, the banking crisis in Europe and the United States made the market expect that the Federal Reserve will cut interest rates before July. In addition, as the European and American Financial Institution Groups responded to the banking crisis, especially after the Swiss National Bank injected 54 billion dollars into Credit Suisse, the market's safe-haven buying demand for the dollar also weakened.

UBS on Sunday agreed to buy rival Credit Suisse for 3 billion Swiss francs and agreed to take losses of up to $5.40 billion, according to the latest news. Safe-haven demand for the dollar is expected to weaken further, and the short-term dollar index faces further downside risks.

Of course, the market will also pay attention to further news from the European and American banking industries, and will also pay attention to this week's Federal Reserve interest rate decision. At present, the market expects the Federal Reserve to raise interest rates only 25 basis points this week.

According to CME's FedWatch tool, the Fed funds futures contract shows a 61.3 per cent probability that the Fed will raise rates by 25 basis points. It also shows that the Fed will cut rates by July, indicating that recession fears are growing as the central bank tightens monetary policy to combat high inflation.

The dollar index fluctuated in a narrow range on Monday and is currently trading around 103.78. The dollar index fell 0.66% on Friday to close at 103.74. Last Thursday's bailout of First Republic Bank boosted risk appetite in the market, and concerns about global banks eased, weighing on safe-haven buying demand for the dollar. Traders are waiting for the Federal Reserve's two-day policy meeting, which is expected to announce a 25 basis point rate hike at the end of the meeting on March 22.

Mazen Issa, senior FX strategist at TD Securities, said it was difficult to say whether the banking turmoil of the past week would lead to an immediate recession.

"It probably increases the probability of a real recession, and maybe it increases the probability of a hard landing, which is a more severe recession dynamic," he said. "Once one regional bank collapses, it's a natural human emotion to question whether all the regional banks are in trouble."

The banking troubles have revived memories of the 2008 financial crisis, when dozens of institutions collapsed or received billions of dollars in bailouts from governments and central banks.

Regulators and other banks have stepped in to support three smaller US banks, including First Republic, as Credit Suisse became the first major global bank to receive an emergency rescue since the financial crisis.

"People are on the fence about what will happen to the US economy," said Ed Moya, senior market analyst at OANDA. "Right now we're not debating'soft landing, no landing '. We're talking about whether this is a mild or severe recession."

On Sunday (March 19), it was revealed that under the mediation of the Swiss government, UBS agreed to buy rival Credit Suisse for 3 billion Swiss francs and agreed to bear losses of up to 5.40 billion US dollars.

UBS said the 22.48 Credit Suisse shares held by Credit Suisse shareholders will be exchanged for one UBS share, equivalent to 0.76 Swiss francs per share, for a total consideration of 3 billion Swiss francs. The deal is expected to close by the end of 2023 and will save about $7 billion a year through 2027.

The Swiss National Bank said it would provide liquidity assistance of 100 billion Swiss francs ($108 billion) to the merged banks. The Swiss financial marekt regulator (FINMA) said that all business activities of the two banks will likely continue without restrictions or interruptions.

Credit Suisse's additional Tier 1 bonds (AT1) with a nominal value of about 16 billion Swiss francs ($17.20 billion) will be fully written down following the Swiss government's support.

Affected by this news, the safe-haven yen weakened on Monday. As of 08:15, the dollar is currently up 0.5% against the yen, trading around 132.45; and due to concerns about the banking crisis in Europe and the United States, the dollar fell more than 2% against the yen last week. It closed down 1.33% on Friday, closing near 131.80.

Commodity currencies also rose slightly on Monday, continuing Friday's rally. The Australian dollar rose 0.3% against the US dollar to 0.6718, and the Australian dollar rose 0.68% against the US dollar on Friday. The New Zealand dollar opened nearly 0.3% higher against the US dollar on Monday and is currently trading near 0.6273. The New Zealand dollar rose 1.16% against the US dollar on Friday.

The euro against the dollar was not volatile in early Asian trading on Monday. It is currently trading around 1.0684, but it has held on to most of last Friday's gains. Last Friday, the euro rose 0.7% against the dollar to close at 1.0686, supported by further interest rate hikes by European Central Bank officials.

Pierre Wunsch, a member of the European Central Bank's governing council and the president of Belgium's central bank, said on Saturday that the European Central Bank may continue to raise interest rates because European banks are subject to stricter rules than U.S. banks, and a repeat of the 2008 financial crisis is unlikely.

Goldman Sachs, Morgan Stanley and at least two other banks expect the ECB to raise interest rates modestly by just 25 basis points in May as it grapples with pressures in the banking sector and high core inflation.

Monday's key economic data and risk events

09:15 China March one-year loan market quotation interest rate market expectations 3.65%, previous value 3.65%

09:15 China March five-year loan market quoted interest rate market expectations 4.3%, previous value 4.3%

15:00 Germany February PPI annual rate market expectations 14.5%, previous value 17.8%

18:00 Eurozone January Quarterly Adjusted Trade Account Pre-Value -181

Event: Follow the relevant news of the European and American banking industry