FOREX-Euro, Swiss franc recover a little as market mood improves, traders await ECB - REUTERS
The central bank had all but committed to a 50 basis-point hike at this meeting after its previous meeting. The latest market turmoil has led to some doubt over those expectations.
"If recent inflation data clearly underpinned the ECB’s pledge to hike rates by 50bp in March, the ongoing turmoil in the financial sector is casting doubts on whether policymakers will raise rates at all," said Francesco Pesole FX strategist at ING.
Pricing in derivatives markets currently indicates a little more than a 50% chance of a 50 basis-point hike, an increase from earlier in the week.
Pesole said it was also unclear how the euro would react to the ECB's decision.
"If the ECB 50bp hike comes in an environment where markets are scaling back concerns on the banking sector thanks to the support from the SNB, then this may actually be read as a signal of confidence by Frankfurt on the health of the euro zone banking system, and can ultimately lift the euro," Pesole said.
"Should the ECB force a hike in a still fragile environment for the European banking sector, the impact on EUR/USD may actually be negative, as investors see this as another major risk for the financial stability in the area."
Elsewhere, the safe-haven Japanese yen remained in favour even as markets calmed a little.
The dollar was last down 0.69% against the yen at 132.5, a near 4% slide from the U.S. currency's near three-month high hit on March 8 before markets entered their tailspin.
Sterling was steady at $1.20415, and the dollar index, which tracks the unit against six main peers, was down 0.2% at 104.45.
(Reporting by Alun John in London, additional reporting by Joice Alves in London and Rae Wee in Singapore; Editing by Kim Coghill, Emelia Sithole-Matarise and Hugh Lawson)