FOREX-Credit Suisse woes knock euro, sterling, Swiss Franc

By Joice Alves

LONDON, March 15 (Reuters) - European currencies fell sharply on Wednesday after Credit Suisse's tumble to a new low renewed worries about the European banking sector following Silicon Valley Bank's collapse.

Credit Suisse shares fell around 20% after its biggest investors said it could not provide more backing.

The Swiss lender woes led the wider European banking index to its lowest level since early January and triggered sharp sell off in the currency markets.

The euro fell 1.2% to $1.0605, sterling dropped 0.8% to $1.2065 and the Swiss franc slid 1.2% to 0.9251 per dollar.

"This morning’s Credit Suisse news is doing all of the damage in FX markets as European bank stocks take another beating today," said Simon Harvey, Head of FX Analysis at Monex.

"The sell-off in these stocks only raises concerns over financial stability again, which is having a knock-on effect in European government bond and swap markets as the prospect of an more restricted ECB (European Central Bank) comes back into view," he said.

Money markets have changed their bets for the ECB rate hikes amid the European bank turmoil.

Markets are now pricing in a 50% chance of a 50 basis point hike in euro zone rates from the ECB on Thursday. Earlier in the day, they were pricing in a 90% chance of such move.

Markets are pricing in a 60% chance of a 25 bps increase from the U.S. Federal Reserve next week.

The safe-haven dollar rose sharply with the index measuring the U.S. currency against six peers surging 0.9% to 104.65.

UK BUDGET

Investors are also awaiting for the British government's budget announcement later on Wednesday.

Finance minister Jeremy Hunt, due to make a budget speech to parliament at around 1230 GMT, is expected to announce how he will try to prop up the world's sixth-biggest economy.

"We doubt anything in the Budget will be sterling negative - after all taxation levels are near the limit - but equally we do not see it as especially sterling positive either," said Chris Turner, global head of markets at ING.

(Reporting by Joice Alves in London and Tom Westbrook in Singapore; Editing by Tomasz Janowski and Raissa Kasolowsky)