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Foreign Exchange Analysis ~ 20 March 2023

GB Pound

What happened last week?

Sterling was happy to sit out a lot of the bank stress movements last week and ended the week higher against the euro and USD

What to watch for in the short-term?

Those reading this who were trading through 2008 will know that sterling traded pretty disastrously as the world’s financial services sector imploded following the collapses of Bear Stearns and Lehman Brothers.

Happily enough the pound has not followed the same playbook so far in 2023 and sits out of the limelight foisted upon the USD and EUR after the demises of Silicon Valley Bank and Credit Suisse respectively.

Given the fall of Credit Suisse we would not be surprised if UK banks did come under scrutiny in the coming days and weeks, pressuring the pound lower.

What about the coming months? The Bank of England meeting this week will likely follow the same moves as the ECB did; a hike to show that work is being done to combat inflation but comments suggesting this cycle will come to an end soon. Such a move could lead to GBP weakness.


Wednesday 07.00 GMT | UK Inflation

Thursday 12.00 GMT | BOE rate decision

US Dollar

What happened last week?

The Fed acted in concert with other central banks to increase access to dollars both domestically and internationally.

What to watch for in the short-term?

The dollar hasn’t responded as positively to the generalised risk-off behaviour in markets as it may have done in previous years. That being said any signs of lingering stress in the financial sector and defensive positioning ahead of the Fed meeting this Wednesday could offer support to the dollar.

Markets are a confidence game at the best of times and we can foresee investors holding the dollar for confidence reasons for a little while longer.

What about the coming months? Data from the US economy continues to lead the industrialised world but if markets want a full credit meltdown, there’s not much a strong jobs market can do.


Wednesday 18.00 GMT | Fed Meeting


What happened last week?

Despite the concerns over financial stability in some markets last week the ECB chose to continue hiking interest rates, increasing borrowing costs in Europe by 50bps.

What to watch for in the short-term?

With the latest inflation projections forecasting both core and headline inflation close to 2% in 2025, the ECB was able to hike rates but present the rise in borrowing costs in a dovish manner; the accompanying minutes shied away from hints towards further rate increases for the first time in several months.

Needless to say, the fallout from Credit Suisse will linger for weeks and we expect investors to target European banks as a follow-up to the weekend’s news, limiting the ability of the single currency to rally.

What about the coming months? The dust needs to settle on Credit Suisse for a longer term direction on the euro, although we are positive that growth indicators from Europe should remain positive as the year continues, supporting the EUR and the ECB’s current policy stance.


Tuesday 10.00 GMT | German ZEW

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