UK: Weekly FX Market Update 20 March
The market is giving a 50% chance for the Bank of England to increase interest rates from 4% to 4.25% on Thursday. Previous estimates had been fully pricing in this rate hike. However, with the fundamental situation in the global banking sector being so fragile, the odds of a rate hike have diminished.
The latest budget didn’t set pulses racing: not necessarily a bad thing after the high volatility we saw at the end of 2022.
Chancellor Hunt has hopes for the UK economy to avoid a recession in 2023.
UK CPI is expected to fall to 9.8% annually in data released this Wednesday: another reason for a potentially less hawkish BoE .
The ECB delivered a ‘dovish’ 0.5% rate hike last week.
They made no mention of their previous commitment to keep ‘raising interest rates significantly at a steady pace’ .
This move was attributed to the sudden collapse of the Credit Suisse share price. The bank was ultimately given a CHF 50 billion emergency liquidity facility.
The ECB was at pains to stress that Eurozone banks are in fine health, but that won’t’ stop the market looking for signs of stress.
Will the Swiss and US banking issues keep the ECB from hiking interest rates again?
ECB President Lagarde speaks on Tuesday and Wednesday. Can she keep the markets calm?
The US banking system is under pressure after the collapse of SVB and Signature Bank. The collapses occurred as a result of huge bond losses at SVB and depositors’ rapid withdrawals from both institutions.
The Fed has stepped in, giving assistance to the tune of US$ 155 billion on Friday.
JP Morgan, Bank Of America and Citigroup, amongst others, have put US$ 30 billion into the First Republic coffers; however, is that enough to stop the current turmoil?
Will this banking crisis stop the Fed hiking rates on Wednesday? Two weeks ago a 0.5% hike was favoured, but expectation has now dropped.
Will Goldman Sachs and Nomura be correct in predicting that the Fed will hold rates steady or actually cut rates by 0.25%?
Can Fed Chair Powell bring a swift end to the banking crisis, while continuing to bring inflation down to his 2% target?
Events for the weekend ahead:
Mon Mar 20
10:00 EUR Trade Balance
Tue Mar 21
All Day Japan Bank Holiday
07:00 GBP Public Sector Net Borrowing
10:00 EUR ZEW Economic Sentiment
12:30 CAD CPI
12:30 EUR ECB President Lagarde Speaks
Wed Mar 22
07:00 GBP CPI
08:45 EUR ECB President Lagarde Speaks
18:00 USD FOMC Interest Rate Decision/Economic Projections
18:30 USD FOMC Press Conference
Thu Mar 23
12:00 GBP MPC Interest Rate Decision
12:30 USD Unemployment Claims
15:00 GBP MPC Mann Speaks
Fri Mar 24
07:00 GBP Retail Sales
09:00 EUR Flash Services PMI/Flash Manufacturing PMI
09:30 GBP Flash Services PMI/Flash Manufacturing PMI
12:30 USD Durable Goods
13:45 USD Flash Services PMI/Flash Manufacturing PMI
14:30 GBP MPC Mann Speaks