Fear, uncertainty over bank turmoil sparks flight to safe haven currencies

SINGAPORE: The safe haven US dollar and Japanese yen found support on Thursday (Mar 16) from renewed fears of a global banking crisis, after contagion from the implosion of United States-based Silicon Valley Bank spread across the Atlantic to Swiss bank Credit Suisse.

Credit Suisse said on Thursday that it would borrow up to US$54 billion from the Swiss National Bank to shore up liquidity and investor confidence, after its shares on Wednesday plunged as much as 30 per cent, which prompted the Swiss central bank to throw a financial lifeline to the embattled lender.

While the news helped to stem some heavy selling in Asia trade, market sentiment remained fragile as worries mount that the recent stress unfolding across banks in the US and Europe could be a harbinger of a widespread systemic crisis.

That sent traders flocking to the greenback and yen, which are considered safer bets in times of turmoil, keeping the two currencies buoyed on Thursday.

The yen jumped more than 0.5 per cent to extend Wednesday’s 0.6 per cent gain, and last stood at 132.80 per dollar.

Against the Swiss franc, the dollar pared some of its previous session’s 2.15 per cent surge – the largest daily gain since 2015 – but kept the Swissie pinned near a one-week low.

“Now, Credit Suisse has the clout of (the) Swiss National Bank covering its back, which is a central bank that doesn’t mess around in the time of crisis,” said Matt Simpson, senior market analyst  at City Index.

“So ultimately, I think this is a good thing for market sentiment. I’m just not sure if or when investors will draw the same conclusion with all the emotion in the air.”

Credit Suisse, which is battling to recover from a string of scandals that have undermined the confidence of investors and clients, was the latest casualty to be caught up in a crisis of confidence after the collapse of SVB last week.

SVB’s shutdown last Friday, followed two days later by the collapse of Signature Bank, forced US President Joe Biden to rush out assurances that the financial system was safe and prompted emergency US measures giving banks access to more funding.

“Given the elevated uncertainties and concerns about broader financial contagion, the dollar, as well as the yen, will be the main beneficiaries because of safe haven demand,” said Carol Kong, a currency strategist at the Commonwealth Bank of Australia (CBA).

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