Euro rises, dollar falls after ECB rate decision

The dollar fell and the euro rose on Thursday after the European Central Bank raised interest rates as planned despite market chaos in recent days, in a sign the Federal Reserve also will raise rates next week as both stay on track to tame inflation.

The dollar and euro stuck to a narrow range before the ECB announced a half-percentage point rate hike as promised to curb inflation, with markets pricing more than an 80% likelihood that the Fed will raise rates by a quarter point on March 22.

Treasury yields rose at the short end, while notes and bonds with maturities of 10 years or more fell after an initial volatile reaction by markets to the ECB decision.

“They managed to strike a balance that seems fit with a purpose, where you’re trying to take some steps in the fight against inflation, while also acknowledging that the world has shifted since you last met,” said Simona Mocuta, chief economist at State Street Global Advisors in Boston.

The ECB has raised rates at the fastest pace on record and the Fed at its quickest in four decades to curb high inflation.

But a rout in global markets after Silicon Valley Bank collapsed in the United States last week and a plunge in the share value of Credit Suisse (CSGN.S) this week threatened to upend those plans.

The euro fell as much as 0.25% after the ECB’s decision, but later reversed course, as did the dollar. The euro was up 0.41% to $1.0618 while the dollar index fell 0.296%.

Antoine Bouvet, senior rates strategist at ING, said the promised 50-basis-point rate hike “sends a strong message on inflation, but the statement is peppered with reference to market tensions. This means the ECB will be data-dependent.”

Currency and other markets were broadly calmer on Thursday after Credit Suisse said it would borrow up to $54 billion from the Swiss National Bank to shore up liquidity and investor confidence.

The bank’s shares had plunged as much as 30% on Wednesday.

That stability also helped the Swiss franc to strengthen, and the dollar at one point fell more than 1% against the franc to 0.9232, reversing some of its 2.15% surge on Wednesday – the largest daily gain since 2015.

Elsewhere, the safe-haven Japanese yen remained in favor even as markets calmed a little.

The Japanese yen strengthened 0.27% to 133.04 per dollar as the U.S. currency slipped further from a nearly three-month high of 137.91 it hit on March 8.

Sterling was last trading at $1.211, up 0.37% on the day.

Currency bid prices at 12:28PM (1628 GMT)
Source: Reuters (Reporting by Herbert Lash; Additional reporting by Alun John, Joice Alves and Harry Robertson in London and Rae Wee in Singapore; Editing by Kim Coghill, Emelia Sithole-Matarise, Hugh Lawson, Paul Simao and Jan Harvey)