In Europe, the EUR/USD currency pair is getting close to 1.0700 again. Even though the global financial crisis is bad for Treasury yields, the pair does better when more US dollars are sold. European Central Bank (ECB) Christine Lagarde’s speech was expected.
Even though there was a big gap at the beginning of the week, the EUR/USD pair fell below 1.0700. Investors stop taking risks because they don’t know if the major central banks can control the global financial crisis.
This weekend, Credit Suisse Group AG was bought by UBS Group AG. UBS will buy Credit Suisse for $3.23 billion and take on up to $5.4 billion in losses as part of a deal that will be done by 2023. The Federal Reserve (Fed) will restart daily swaps to help the Bank of Canada (BoC), Bank of Japan (BoJ), Swiss National Bank (SNB), and European Central Bank (ECB) meet their liquidity needs.
Early in the week, these events made the markets look better, but by the time the European morning came around, safe-haven flows were back. Futures for US stock indexes were down between 0.6% and 1.1%, and lots for the Euro Stoxx 50 were down 1.2%.
Investors might see the actions of the leading central banks as a sign that liquidity problems are worse than thought. The benchmark 10-year US Treasury bond yield is down 3% on the day, and the CME Group FedWatch Tool shows that markets are pricing in a greater than 50% chance that the Fed will keep its policy rate the same after its March meeting on Wednesday.
Conclusion
Fed bets on the safe side keep the US Dollar in check. If investors keep leaving, the weakening of the USD may not help EUR/USD much.