The European Central Bank (ECB) will meet on Thursday, after which it is due to announce its latest interest rate decision.
However, the meeting comes during a tumultuous week for the banking sector, hit by the collapse of Silicon Valley Bank in the US, which has had a knock-on effect on Credit Suisse this side of the Atlantic.
The safe haven US dollar and Japanese yen found support on Thursday from renewed fears of a global banking crisis, after Credit Suisse confirmed it will borrow up to 50 billion Swiss francs (€50.7 billion) from the Swiss National Bank to shore up liquidity and investor confidence.
The move comes after its shares plunged as much as 30 per cent on Wednesday, prompting the Swiss central bank to throw a financial lifeline to the embattled lender.
While the news helped to stem some heavy selling in Asia trade, market sentiment remained fragile as worries mount that the recent stress unfolding across banks in the US and Europe could be a harbinger of a widespread systemic crisis.
Investors remained on tenterhooks as they await further clarity on how widespread the fallout could be, with rescue measures from authorities doing little to soothe heightened fears thus far.
The focus has also turned to how central banks will navigate their paths on future rate hikes, with policymakers left in a bind on how much further they should raise rates to stem inflation without triggering a financial sector shakeout.
Ahead of the ECB meeting, traders have quickly moved to scale back their bets on a 50-basis-point rate hike, as the rout in Credit Suisse shares fanned concerns about the health of Europe's banks.
Two supervisory sources told Reuters that the ECB has contacted banks on its watch to quiz them on their exposure to Credit Suisse.
"There is certainly a risk that the ECB will not follow through with its pre-commitment of a 50-basis-point hike because of financial stability concerns," said Carol Kong, a currency strategist at Commonwealth Bank of Australia (CBA).
"It will definitely be a tough call for any major central bank to stick with its tightening path." -Reuters
