NEW YORK/LONDON (Reuters) -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 likely raise rates next week as both stay on track to tame inflation.

The two currencies stuck to a narrow range before the ECB announced a half-percentage point rate hike as promised, with markets pricing an 80.5% likelihood that the Fed will lift rates by a quarter point on March 22, CME’s FedWatch Tool showed.

U.S. and euro zone government bond yields rose as stock markets on both sides of the Atlantic rallied after an initial volatile trading reaction by markets to the ECB decision.

“The market is looking at the ECB, seeing a central bank facing market uncertainty and taking the hawkish decision that it had hinted at in earlier guidance, being driven by its inflation mandate and saying ‘the Fed might be able to follow that similar template,'” said Brian Daingerfield, head of G-10 FX strategy at NatWest Markets.

The ECB has raised rates at the fastest pace on record and the Fed at its quickest in four decades to curb inflation. Higher rates on U.S. government debt than other countries has fortified the dollar, as has a relatively strong economy.

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 this week threatened to upend the ECB’s plans to raise rates.

“If they didn’t do anything, if there was no hike, people would have been more panicked. They would immediately have started speculating what are they hiding?” said Simona Mocuta, chief economist at State Street (NYSE:) Global Advisors in Boston.

“It also gives a sense of continuity in this moment of mayhem. It’s a bit of an anchor, as policymakers should be at times like this,” she said.

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 0.38% to $1.0615 while the fell 0.258%.

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 weakened 0.04% to 133.47 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 $1.212, up 0.46% on the day.

Currency bid prices at 3:24 p.m. (1924 GMT)

Description RIC Last U.S. Close Pct Change YTD Pct Change High Bid Low Bid

Previous

Session

Dollar index 104.3600 104.6500 -0.26% 0.841% +104.7500 +104.2000

Euro/Dollar $1.0617 $1.0579 +0.37% -0.91% +$1.0635 +$1.0552

Dollar/Yen 133.4700 133.4750 -0.01% +1.79% +133.8200 +131.7200

Euro/Yen 141.71 141.10 +0.43% +1.00% +141.9200 +139.1500

Dollar/Swiss 0.9289 0.9338 -0.52% +0.47% +0.9339 +0.9233

Sterling/Dollar $1.2122 $1.2056 +0.56% +0.25% +$1.2127 +$1.2029

Dollar/Canadian 1.3724 1.3767 -0.31% +1.29% +1.3787 +1.3722

Aussie/Dollar $0.6656 $0.6622 +0.55% -2.33% +$0.6668 +$0.6612

Euro/Swiss 0.9861 0.9871 -0.10% -0.34% +0.9882 +0.9800

Euro/Sterling 0.8758 0.8770 -0.14% -0.97% +0.8819 +0.8748

NZ Dollar/Dollar $0.6185 $0.6188 -0.02% -2.56% +$0.6188 +$0.6140

Dollar/Norway 10.7570 10.7550 +0.14% +9.74% +10.8710 +10.7250

Euro/Norway 11.4247 11.3739 +0.45% +8.87% +11.4830 +11.3728

Dollar/Sweden 10.5147 10.5835 -0.44% +1.03% +10.6160 +10.4979

Euro/Sweden 11.1625 11.2122 -0.44% +0.12% +11.2473 +11.1440

The U.S. dollar retreated in early European trade Thursday and the euro pushed higher as Credit Suisse’s move to bolster its financial position boosted risk sentiment.

At 03:55 ET (07:55 GMT), the , which tracks the greenback against a basket of six other currencies, traded 0.3% lower at 103.980, handing back some of the previous session’s 1% gain.

Credit Suisse (SIX:) announced late Wednesday to borrow as much as CHF 50 billion ($1 = CHF 0.9297) from the Swiss National Bank, strengthening its liquidity position.

Worries have been growing about the Swiss lender’s financial health for some time as it struggled with hefty customer outflows in the wake of a string of scandals. These came to head on Wednesday with its share price slumping to a record low as its main investor, Saudi National Bank, said it was unable to provide more funding to the lender.

The news of this credit line has boosted sentiment, soothing some concerns over an immediate collapse in the sector that had been hit hard by the three recent U.S. bank failures.

rose 0.4% to 1.0619, bouncing on the news, ahead of the European Central Bank’s latest policy-setting later in the session.

The ECB had previously signaled the likelihood of another interest rate increase of 50 basis points as underlying Eurozone remained elevated, but concerns about potential repercussions to the banking sector from such a hefty hike could prompt the policy makers to act more cautiously.

“The market will … take its cue from the European Central Bank today. Pushing on with a 50bp rate hike will prove difficult and we should expect more volatility immediately after the … decision,” said analysts at ING, in a note.

ECB President Christine Lagarde’s will also be of interest as she is sure to be asked how the central bank can balance efforts to deliver price stability while safeguarding financial stability.

The question is the same in the U.S., with the likely to hold back from increasing interest rates by an outsized 50 basis points next week, given the strain on the U.S. banking system.

Goldman Sachs has lifted its estimate of the odds of a U.S. recession to 35% over the next 12 months in response to increased uncertainty over the economic impact of bank stress, an increase from 25% previously.

Elsewhere, rose 0.3% to 1.2105, boosted by the improved risk sentiment. Also helping was Chancellor Jeremy Hunt’s comments in the budget on Wednesday that the economy was likely to shrink 0.2% in 2023, an improvement from the previous forecast for a 1.4% contraction.

fell 0.5% to 132.69, with the yen one of the best performers of the day. The risk-sensitive rose 0.6% to 0.665670, while edged 0.1% lower to 6.9007.

© Reuters. Dr. Jared Bernstein testifies on his nomination to be Chairman of the Council of Economic Advisers during a Senate Banking, Housing and Urban Affairs Committee hearing on Capitol Hill in Washington, U.S., April 18, 2023. REUTERS/Amanda Andrade-Rhoades

WASHINGTON (Reuters) – There was “some evidence” that China wants the dollar to weaken as the international reserve currency, said a White House nominee for a top economist position on Tuesday, and he urged Congress to raise the U.S. debt ceiling to protect the dollar’s value.

Jared Bernstein, a member of the White House Council of Economic Advisers, told a Senate Banking Committee hearing on his nomination to head the body that U.S. control of the world’s reserve currency offered a number of benefits, including the ability to impose sanctions, as Washington had done on Russia over its war against Ukraine.

Asked about an essay he published in the New York Times in 2014 entitled “Dethrone King Dollar” and whether the U.S. would be better off if it were to lose that status, Bernstein told the committee, “Definitely not.”

Bernstein, who wrote the piece while serving as a senior fellow at the Center on Budget and Policy Priorities, said the essay was intended to show both the “very solid benefit” of having the world’s reserve currency, but also the costs, including the ability of China and other countries to manage their currencies to have a trade advantage.

Asked by Republican Senator Bill Haggerty where he stood now, Bernstein said, “I share your view on the importance of the dollar as the dominant reserve currency.”

Bernstein used the exchange to underscore the administration’s concerns about the looming deadline this June for Congress to raise the debt ceiling or risk default, and Republican efforts to condition that approval on budget cuts.

He said raising the debt ceiling would help maintain the dollar’s reserve currency status and protect its value. “Having that kind of kind of default out there as a political tool is antithetical to what you and I are talking about right now.”

While Bernstein did not elaborate on China, the U.S. Treasury in November found no major U.S. trading partners manipulated its exchange rates to gain unfair advantage through June 2022, but would monitor China and six other countries.

The Treasury report criticized China for not publishing foreign exchange intervention and lack of transparency around its exchange-rate mechanism. China has previously denied intervening to weaken the yuan.

Weak tax collections in April could mean the U.S. government’s deadline to raise the $31.4 trillion debt ceiling will happen sooner than expected, analysts said on Tuesday.

The Treasury Department has warned that the federal government might no longer be able to meet its financial obligations as early as June 5, while the nonpartisan Congressional Budget Office has forecast that moment would come between July and September.