Safe haven status helps dollar edge higher; Fed meeting in focus

Safe haven status helps dollar edge higher; Fed meeting in focus
© Reuters.

By Peter Nurse – The U.S. dollar edged higher in early European trade Monday with the safe haven in demand amid the ongoing banking crisis and ahead of this week’s Federal Reserve policy-setting meeting.

At 04:10 ET (08:10 GMT), the , which tracks the greenback against a basket of six other currencies, traded 0.1% higher at 103.470.

The dollar retreated overnight after a group of major central banks announced emergency liquidity measures in order to ensure the stability of the financial system.

This followed the emergency rescue of Credit Suisse (SIX:) with the Swiss authorities organizing the takeover of the banking giant by rival UBS (SIX:).

However, tensions in the banking sector remain, particularly in the debt market, given that UBS will write off about $17 billion worth of Credit Suisse bonds as part of the takeover.

Traders are also cautious ahead of this week’s Federal Reserve .

Expectations are now running high that the U.S. central bank will lift interest rates by only 25 basis points given the turmoil in the banking sector, a smaller hike than seemed likely earlier this month.

However, there remains a great deal of uncertainty over what signals the Fed will send to markets, given remains elevated.

fell 0.1% to 1.0659, ahead of a speech by ECB President later in the session as she appears before the European Parliament’s economic committee.

The increased interest rates by 50 basis points last week, with Governing Council member François Villeroy de Galhau saying Monday that the decision shows the institution is confident in the region’s banks.

rose 0.2% to 1.2193, with the expected to hike interest rates later this week. However, the central bank will have to strike a difficult balance between the fight against and worries about financial turmoil.

traded flat at 0.6694, edged lower to 0.6257, while fell 0.5% to 131.12, with the yen also benefiting from its safe haven status.

from the Bank of Japan’s March meeting showed that many board members were in favor of maintaining the central bank’s extra accommodative stance, but some members voiced concern over lingering distortions in the yield curve that its policy has caused.

edged higher to 6.8891 after the unexpectedly cut reserve requirement ratios for local lenders, loosening liquidity conditions.

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