By Matthew Boyle
Yesterday was relatively quiet in terms of market data – the main release being US new home sales which showed growth within the sector. And It was the US dollar that was the winner of the majors across the day albeit not primarily because of an uptick in new house sales, but due to markets flocking towards the Dollar. This was following a dump of US bank First Republic shares as news broke $100 billion deposit flight from the bank in Q1 as clients withdrew funds. Strange perhaps the Dollar would be bought given First Republic is an American bank but following the recent collapse of SVB and Credit Suisse market concern grows for the entire banking sector finding itself under increasing pressure. As this global financial uncertainty grows investors favour safe-haven currencies – primarily the USD due to the benefit of its high liquidity should markets crash. As a result, the Dollar was able to steal around a cent against the Pound and the Euro throughout the day’s trading.
GBP>EUR exchange rates remained flat and traded within a tight 50pip range. Indeed, for some time now they have traded tightly – for several months now in a 2 cent range.
One might expect more volatility given the BoE and ECB interest rate programmes occurring of course while the Fed are still managing their own, all in a bid to battle global inflation.
The reason that GBP/EUR has traded so tightly despite the changes to interest rates is that, unusually, the programmes are all happening at the same time.
A hike in rates would normally see that currency gain significant strength against its counterparty but with the three major central banks all raising rates together in programmes that are highly publicised, the bets have been made for some time now.
But this could be about to change. It is widely expected the Fed will only hike one more time, like the BoE who are expected to raise once or perhaps twice at a push. The ECB’s programme however is set to run many more months.
Markets have known this and placed bets according and with some reasonable knowledge of the likely timings of the various hikes. With two of the three majors expected to cease action soon, expect movement as bets will back on to see if attempts to curb rising inflation have worked for each central bank.
Data wise today is quiet on the market with the USD taking centre with durable goods orders data released this afternoon.
Do be warned though with the central banks’ programmes on interest rate raises ending soon and with rates having been stagnant for some time now when the rate breaks out the movement will likely be significant. Speak to A Place in the Sun Currency today to find out how we can help protect you against these potentially costly market movements.