The Week Ahead: Budgets and Interest Rate Rises

By Simon Eastman

Last week the Pound ended the week  with a decent rally, gaining from better than forecast GDP figure, which showed the UK economy grew by 0.3 percent, compared to the expected 0.1 percent increase. As such, the Pound rallied across the board, giving those buying USD a 2 cent increase at its peak, and those buying the singe currency euro, just under 1 cent increase at its peak. This was a relief to those with sterling in hand who have seen the Pound struggle yet again, having seen it previously making good gains in recent weeks.

Markets will be cautious as they open today, given the events unfolding towards the end of last week and over the weekend. The dollar weakness could well be attributed to the demise of the Silicon Valley Bank, which had been seeking a buyer, to help as it struggled to stay afloat. Having bet on bonds, that interest rates would stay low for the long term and seen that bet crumble as the Fed has consistently raised rates recently, the bank has struggled to pay those with money held there, exacerbated by stories of its failure, leading to millions being withdrawn, I a modern day “run” on the bank. Having not found a way out, the Federal Reserve stepped in and closed it down. This also led the Bank of England to step in and put its UK arm into administration over the weekend. The fall out from this is yet to be seen and could well have an adverse effect on sterling this week.

The Week Ahead

The main events this week are on Wednesday, with the UK Govt giving its spring budget and Thursday the European Central Bank releasing their latest interest rate decision, where a hike is widely expected. Alongside their outlook and press conference, we should see some movement on the markets as this all happens at the same time as Jeremy Hunt gives us his latest budget, since cleaning up the mess from Liz Truss and Kwasi Kwarteng terrible budget back in October last year.

In addition to the above, we have the following main points of focus for the markets this week:

Monday: Eurogroup Meeting

Tuesday: UK average earnings, unemployment rate, claimant count change. EU EcoFin meeting, US consumer price index.

Wednesday: EU industrial production and UK budget report. US retail sales. New Zealand GDP.

Thursday: Aus employment data and unemployment rate. US housing data, jobless claims. ECB interest rate decision, monetary policy statement and ECB press conference.

Friday: EU inflation, US inflation expectations and Michigan consumer sentiment index.

A good handful of key releases, mixed with some headline EU meetings and the UK budget report, all set to keep traders on their toes over the week. Couple that with the fallout from the SVB failure and we could be in for an interesting week. That said, those with a currency exposure in the coming days or weeks would be prudent to speak with one of the team today for some friendly guidance.