Investors rushed to the Japanese yen on Monday after UBS’s low-cost acquisition of Credit Suisse failed to soothe the markets.
In accordance with the deal, Credit Suisse additional tier-1 (AT1) bondholders totalling $17 billion would be wiped out.
As a consequence, investors in AT1 bonds issued by other banks were alarmed. Some debt holders, who erroneously believed they would be afforded more protection than shareholders, were enraged.
As the overnight slump in Asian bank equities echoed throughout Europe, demand for the yen, which is generally seen as a safe haven in times of uncertainty, rose.
The dollar reached its lowest level since February 10 as it dropped to 130.55 yen. It has now rebounded significantly to 130.83 yen, a 0.75 percent decrease.
According to Takahiro Sekido, chief Japan strategist at MUFG, risk aversion is the most influential element on the market.
He remarked, “I’m not too pessimistic, but we must wait and see how much risk contagion will emanate from Europe.
In premarket trading, the.SX7P European Banking Stock Index was down 3.12%.
The stock and bond markets had the most fluctuation, but the other currency markets experienced modest change.
At $1.065, the euro was down 0.11% against the dollar, while the pound was up 0.14%. The dollar has strengthened 0.31 percent to its current value of 0.9291 Swiss francs.
As part of efforts by authorities to restore credibility in the international banking system, central banks on Sunday made measures to enhance the global flow of money.
Similar to what was done during the COVID crisis in 2020, the U.S. Federal Reserve coordinated daily currency swaps to ensure that banks in Canada, the United Kingdom, Japan, Switzerland, and the Eurozone had access to the necessary dollars to operate.
The surge in U.S. bonds weighs on the dollar.
According to the head of Asia FX strategy at RBC Capital Markets, the decrease in U.S. bond yields has weakened the dollar’s appeal as a safe-haven asset.
The U.S. dollar index (a measure of the dollar’s value compared to six major rivals) stayed constant at 103.79 this week after declining by 0.73 percent the previous week.
He said that the reduction in the dollar’s value was a result of falling interest rates on U.S. government bonds. The yen is the safest currency in the foreign exchange market.
On Monday, as investors sought the safety of government bonds, yields on 10-year U.S. Treasury notes dropped 8 basis points to 3.313% on the idea that the Federal Reserve would be unable to raise interest rates further.
U.S. 10-year yields, which move inversely to prices, reached a 16-year high of 4.091% at the start of March.
The Fed’s most recent rate decision is anticipated on Wednesday, adding even another unknown element.
According to derivative market pricing, investors anticipate that the Federal Reserve will maintain rates between 4.5 and 4.75 percent on Wednesday.
In May, rates should peak at around 4.7%. It then began a slow drop that should continue until the end of the year.
To $0.669, the value of one Australian dollar declined by 0.21%. The US dollar fell to C$1.372 against the Canadian dollar from C$1.375.
Bitcoin achieved a new market high of $28,519, and it is now trading 0.91% higher at $28,311.
