Critical week for data as market volatility increases

By Matthew Boyle

Last Wednesday was a busy one for GBP>EUR, with the Pound gaining ground against the single currency. In the UK we saw Chancellor Jeremy Hunt release the 2023 budget for the UK and in Europe the ECB announced their interest rate decision. Whilst the budget was received positively, it was not this that caused the Pound to gain but rather it was the Euro weakening as Christine Lagarde announcement that the ECB were raising interest rates by 0.5%. Set against a backdrop of SVB bank failing and Credit Suisse announcing near bankruptcy it seems the market’s reaction was one of concern. Whilst HSBC subsequently bought SVB and Credit Suisse were bailed out by the Swiss central bank by the significant sum of around $50 billion Dollars, some suggest these events signal grave concern for global markets. Whilst Lagarde states that the Euro is robust enough to take the pressure of further hikes, it seems the markets might disagree. This result saw GBP>EUR rates climb to the best they have been since mid-December.

Last week also saw the Pound make gains against the USD follow the news of the SVB failure, seeing GBP>USD rates reach the best they have been since mid-February as the US battled what could be the first domino in a global banking crisis.

It is Wednesday again that begins the focus for the market as we see the release of the US interest rate decisions. With the collapse of SVB it is unlikely we will see another hike but given the Fed’s previous bullish approach who can be certain? The same day we have ECB head Lagarde giving a speech where markets wait for clues to her stance on the ongoing quandary that interest rates currently pose. Critically on Thursday we then have the Bank of England interest rate decision where it is widely suggested we will see a 0.25% hike. With the USD and EUR seemingly on their backs at present this may offer an opportunity for the Pound – should we see a 0.5% hike we are likely to see a rally by a cent or two, whilst a hike of 0.25% may well see a slip due to pricing in as we have seen many times before.

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