Central bank decisions come into focus
Tuesday 21 March, 2023
Daily Currency UpdateThe global concern about the banking crises eased yesterday after UBS rescued troubled lender Credit Suisse. Although the news offers light relief, concerns remain as there is a risk of shockwaves on smaller US banks, as well as ructions in the bond markets after the losses imposed on Credit Suisse bondholders. European Central Bank President Christine Lagarde testified at the Economic and Monetary Affairs Committee of the European Parliament, in Brussels on Monday. Talking about the current financial market disorder, Lagarde said that the central bank can stop hiking interest rates earlier than previously expected. Lagarde also went on to say that tensions might have an impact on demand and might actually do part of the work that would otherwise be done by monetary policy and interest rate hikes. GBP/USD peaked at 1.2285 yesterday and GBP/EUR touched 1.1460, but both currency pairs have lost ground this morning.
Earlier this morning UK public sector’s new borrowing in February was £16.7 billion. This is £9.7 billion more than February 2022 and the highest February borrowing since monthly records began in 1993. This is likely a contributing factor to why the Sterling has lost some ground against the EUR and USD this morning. The main economic release today will be Germany’s ZEW survey of economic sentiment for March, which may be expected to show a drop to 17.1 from 28.1. Other macroeconomic dates worth noting will be Lagarde speaking again this afternoon as part of a panel discussion and US existing home sales. Today is also the start of the two-day meeting of the Federal Reserve as they are due to deliver their interest rate decision tomorrow.
Key MoversIt has been a very volatile time for the Pound recently, which has seen a three-month GBP/USD range from 1.1820 – 1.2400 and GBP/EUR 1.1160 – 1.1450. The recent banking crises have seen the Pound jump back up to the higher end of these ranges, with the affected banks residing in the US and Europe, but as the crises begin to ease the central bank decisions come into focus for the Pound movement. There are still a number of smaller banks across the US and Europe that could enter into the crises and have a play on USD and EUR weakness, but the US, UK, and Swiss interest rate decisions could be the main driver behind whether Sterling hits fresh highs or begins to test the lower end of the ranges mentioned.
- GBP/USD: 1.2190 - 1.2280 ▲
- GBP/EUR: 1.1350 - 1.1460 ▲
- GBP/AUD: 1.8160 - 1.8520 ▲
- EUR/USD: 1.0660 - 1.0790 ▲