By Peter Nurse
Investing.com – 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
Dollar Index
, 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:
CSGN
) with the Swiss authorities organizing the takeover of the banking giant by rival UBS (SIX:
UBSG
).
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
meeting
.
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
inflation
remains elevated.
EUR/USD
fell 0.1% to 1.0659, ahead of a speech by ECB President
Christine Lagarde
later in the session as she appears before the European Parliament’s economic committee.
The
European Central Bank
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.
GBP/USD
rose 0.2% to 1.2193, with the
Bank of England
expected to hike interest rates later this week. However, the central bank will have to strike a difficult balance between the fight against
inflation
and worries about financial turmoil.
AUD/USD
traded flat at 0.6694,
NZD/USD
edged lower to 0.6257, while
USD/JPY
fell 0.5% to 131.12, with the yen also benefiting from its safe haven status.
Minutes
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.
USD/CNY
edged higher to 6.8891 after the
People’s Bank of China
unexpectedly cut reserve requirement ratios for local lenders, loosening liquidity conditions.