Financial worries as the euro declines; US dollar at a rise

Next week’s European Central Bank (ECB) meeting forced the forex market to undergo some modifications. Reportedly, the euro fell even as officials kept the door open to a 50 basis point rate hike. The US dollar nudged higher as risk sentiment worsened in Europe due to rising banking worries.

The last First Republic Bank and UBS report showcased some concerns regarding earnings. Dialogues about the stability of the financial system once again reappeared.

The US dollar index (DXY) rose by 0.2% and was last seen at 101.48.

UBS announced a 52% decline in quarterly profit as it prepares to absorb fallen rival Credit Suisse. News of First Republic Bank’s falling deposits served as a warning that stability threats are still very much relevant as of Monday.

On Tuesday, safe-haven currencies like the Japanese yen strengthened as well. Even though Kazuo Ueda, the incoming governor of the Bank of Japan, expressed that he is not in a rush to change the bank’s stance. The BOJ meeting this week, which ends on Friday, is his first meeting in the position of chairman.

As of this writing, the yen was up 0.3% to 147.84 per euro. Besides, it was up 0.1% to 134.08 per dollar after earlier touching an eight-year low of 148.635.

Since the beginning of March, the euro was down around 0.2% against the dollar. However, it was still trading above $1.10 after rising more than 4%.

The ECB expectations to raise rates due to optimism in the eurozone economy

According to Pedersen of Danske Bank, the euro performed well against most currencies recently. The optimism surrounding the outlook for the eurozone economy caused the market to anticipate more rate hikes from the ECB.

According to ECB board member Isabel Schnabel, a rate increase of 50 basis points was not out of the question. The case would solely rely on statistics. Inflation data, in particular, is coming two days before the May meeting.

French ECB policymaker Francois Villeroy de Galhau seemed to have a different point of view. He called for additional raises to be modest in both size and number in an interview with Le Figaro. Nevertheless, markets still concentrated on the fact that more hikes are on their way, regardless.

The Swiss franc gained 0.1% against the stronger dollar. As a result, its reputation as a safe haven currency appeared even more solid among investors.

The Swiss franc also reached its best rate against the yen in 20 years at 151.36. The Electronic Broking Services statistics shared the data from the early 2000s.

Sterling was down 0.2% at $1.2463. However, it was still very near the $1.2545 10-month high hit earlier this month.

Meanwhile, as traders awaited the inflation data on Wednesday, the Australian dollar weakened to $0.6654. At the same time, Kiwi set itself at $0.6152.