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.
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.
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.
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.
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