"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 an 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% chance of a 50 basis point hike in euro zone rates from the ECB on Thursday. Earlier in the day, they were pricing in a 90% chance of such move.
Markets are pricing in a 60% chance of a 25 bps increase from the U.S. Federal Reserve next week. The safe-haven dollar rose sharply with the index measuring the U.S. currency against six peers surging 0.9% to 104.65.
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.
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(Reporting by Joice Alves in London and Tom Westbrook in
Singapore; Editing by Tomasz Janowski and Raissa Kasolowsky)
