USD in retreat following SVB collapse
Monday 13 March, 2023
Daily Currency UpdateSilicon Valley Bank (SVB) sent shockwaves through the global banking sector after it went to the market looking for fresh funding, following losses on its major investment portfolio. These losses are linked to the underperformance of the technology sector in the current environment of rising interest rates. The US dollar has retreated amidst a recent rout in bank stocks as investors fear signs of distress in the sector are starting to emerge, something that could convince the Federal Reserve it has done enough on interest rate hikes. The market is now pricing a nearly 18% chance of the Fed sticking to its current rate and an 82% chance of a 25 basis point hike. In contrast, the market was pricing a 70% chance of a 50 basis point hike before the SVB collapse.
Key MoversGBP remains on a fragile footing against the Euro and US dollar but nevertheless received a small boost ahead of the weekend following the release of UK GDP data that showed the economy grew 0.3% in January. The largest contributions to growth in January 2023 came from education, transport and storage, human health activities, and arts, entertainment, and recreation activities, all of which have rebounded after falls in December 2022. The Bank of England could increase rates by a further 25 bps this month, an 11th consecutive rate hike, before ending the current tightening cycle. The markets now await UK employment and wage data to be published this week, as well as British finance minister Jeremy Hunt's new budget.
- GBP/USD: 1.2055 - 1.2145 ▲
- GBP/EUR: 1.1255 - 1.1325 ▲
- EUR/USD: 1.0675 - 0.0745 ▲