WASHINGTON: The dollar slid on Monday as investors reacted nervously to UBS’ cut-price takeover of its beleaguered rival Credit Suisse.
UBS agreed to buy Credit Suisse on Sunday for 3 billion Swiss francs ($3.23 billion) and assume up to $5.4 billion in losses, in a shotgun merger engineered by Swiss authorities.
The US dollar index - which measures the currency against six major peers - was last down 0.472% at 103.300 the day after the merger was announced, following last week’s 0.73% fall.
“On the one hand, some people are surprised that the dollar has taken a hit here, but I do think the [Federal Reserve], the European Central Bank taken pretty good measures to try to stem the contagion fears,” said Thomas Anderson, managing director at moneycorp North America.
“I think whenever people feel like you don’t have to do a flight to quality, the dollar is going to take a hit,” he added.
Under the deal, holders of $17 billion of Credit Suisse Additional Tier-1 (AT1) bonds will be wiped out. That angered some of the holders of the debt, who thought they would be better protected than shareholders, and unnerved investors in other banks’ AT1 bonds.
“The immediate concern now is that AT1 bonds were completely written down, which is contrary to convention because equity holders are supposed to be higher risk than bondholders,” said Alvin Tan, head of Asia FX strategy at RBC Capital Markets. “That’s disconcerting to a lot of people.”
The euro was last up 0.54% against the dollar at $1.0724, while the British pound was last trading at $1.2259, up 0.69% on the day.
The dollar fell 0.1% against the Swiss franc to 0.925.
As part of regulators’ efforts to shore up confidence in the global banking system, central banks moved on Sunday to bolster the flow of cash around the world.
The US Federal Reserve offered daily currency swaps to ensure banks in Canada, Britain, Japan, Switzerland and the euro zone would have the dollars needed to operate, echoing actions taken during the COVID crisis of 2020.
Yields on 10-year US Treasury notes were at 3.468% on Monday as investors moved into government bonds, which are seen as safe assets, and bet the Federal Reserve would now struggle to raise interest rates much further.
The Fed’s latest rate decision is due on Wednesday and adds an additional layer of uncertainty.
Rates currently stand at 4.5% to 4.75%. Traders now expect a peak in rates in May at around 4.8%, followed by a steady series of cuts into the end of the year.
The Japanese yen - long seen as a safe haven at times of stress - was last up 0.17% versus the greenback at 131.59 per dollar.
Australia’s dollar rose 0.28% versus the greenback at $0.671.
In crypto currencies, bitcoin last rose 4.41% to $28,008.00 after earlier hitting a nine-month high.
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