• GBP remains resilient whilst the ongoing banking crisis continues. Last week we saw a four-month high versus the EUR before markets calmed, and yesterday we saw GBPUSD climb to the highest since 2nd February. The USD weakened across the board as markets continue to price in that the Fed will cut interest rates by year-end, whereas markets expect the ECB and BoE to hold rates where they are by year-end. The divergence on rate cut expectations is working against the USD at the moment.
• Risk appetite in markets recovered following the initial fall in banking stocks yesterday morning, with the sector in the green by the end of European trading hours.
• ECB President did her best to reassure markets as well, by suggesting that the euro-area banks’ exposure to Credit Suisse was minimal, and ECB’s Stournaras commented that the European banking system is well equipped with capital.
• Overnight, the RBA (Reserve Bank of Australia) minutes confirmed that the members agreed to consider a rate pause in April. GBPAUD continues to trade higher and is now at the highest rate since 4th March 2022.
If we look at the performance of GBP in times of uncertainty and crisis over the last 15 years, then we have tended to see it weaken. However, the current crisis hasn’t seemed to dent GBP moves higher. Looking at the GBP index we can see that it has broken through the downtrend that has plagued the currency for about a year now, and we seem to be scratching our head as to why this is? The UK has a dis-proportionally large banking sector, but so far, no negative impact on GBP like we saw with USD and EUR in the previous two weeks. One thing that could be keeping GBP supported is the interest rate expectation.
The BoE has been dovish since December, and over recent months the markets had already priced in a rate pause by the Bank following this week’s meeting. So, in a world where central bank is fighting a co-ordinated effort to preserve financial stability, the impact of slowing rate hikes is not having the weakening effect on GBP as it once did. Time will tell if the GBP resurgence continues, and we will be listening to Governor Bailey’s comments on the current crisis on Thursday.
The EUR remains well supported following Lagarde’s comments yesterday and following on from the ECB meeting last week. Much of this is likely to do with the continued weakness of the USD as risk appetite is slowly creeping into markets. Should Fed Powell push back on rate cut expectations then we could see the USD buyers coming back into the markets to cap EURUSD gains.
Equals Market Analysis– 21st March 2023
Today’s Market Rates
Today’s Interbank Rates at 09:31 am against GBP movement.
GBP>EUR – 1.1402
GBP>USD – 1.2244
EUR>USD – 1.0736
GBP>CAD – 1.6744
GBP>AUD – 1.8331
GBP>SEK – 12.649
GBP>AED – 4.4957
GBP>HKD – 9.6030
GBP>ZAR – 22.715
GBP>CHF – 1.1355
· EUR ECB’s President Lagarde speech
· CAD BoC Consumer Price Index Core (YoY)(Feb)
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