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Stock markets tumble as the banking crisis continues.
Sterling maintains gains from its mid-week rally as the week comes to a close. As for the stock markets, there has been lots of volatility amidst growing fears of a banking crisis. Here’s what moved the pound, euro and sterling this week.
GBP
This week was an interesting one for market-watchers all over.
On Monday, news of HSBC buying the UK arm of Silicon Valley Bank (SVB UK) for only £1 spread through the markets like wildfire marking the start of tumultuous 7 days for the banking industry. This was soon followed by the Credit Suisse crisis which hit markets on Wednesday.
The impact of the most recent banking crisis reverberated throughout the stock markets, igniting fears of a financial disaster among many. It also delivered crippling blows to both UK and European indices will doing so. Luckily for the pound however, the chaos didn’t have the same impact (read more in Thursday’s currency note).
Sterling in fact surged to a three-month high against the euro on Monday as economists anticipated and digested Jeremy Hunt’s Budget (delivered on Wednesday). The pound maintained those gains over the course of the day and ended Thursday around 1.31% stronger than the single currency compared to this time last week.
On the data front, besides the chancellor’s Budget and fresh employment data earlier this week, it has been a quiet one for the UK. Nevertheless, following Hunt’s announcement that a recession was no longer on the cards, and despite the lack of key economic data, sterling managed to stay strong.
EUR
While the banking crisis, dominated eurozone news, the other big event for euro-watchers this week was the European Central Bank’s (ECB’s) interest rate decision.
On Wednesday, the ECB’s Governing Council, led by its president Christine Lagarde, raised the main refinancing rate to 3.50%, the deposit facility rate to 3.00% and the marginal lending rate to 3.75%. Overall, the ECB raised interest rates by 50 basis points in line with economists’ expectations.
In light of their decision, the ECB said, “The elevated level of uncertainty reinforces the importance of a data-dependent approach to the Governing Council’s policy rate decisions, which will be determined by its assessment of the inflation outlook in light of the incoming economic and financial data, the dynamics of underlying inflation, and the strength of monetary policy transmission”.
Although the result was as markets had priced in, the ECB’s decision wasn’t enough to overpower sterling’s spring statement surge. As a result, the euro ended Thursday somewhat 0.02% weaker than the pound.
In addition to increasing interest, the ECB also raised this year’s growth and core inflation projections for the euro area. Policymakers now see an average growth of 1.0% and core inflation at 4.6%.
USD
The US dominated markets with key economic releases throughout this week. From president Biden’s speech on the banking system, to the latest inflation rate, retail sales and jobless claims – investors had plenty to digest.
In the latest initial jobless claims data, it was revealed that the number of Americans filing for unemployment benefits fell by 20,000 to 192,000 on the week ending March 11th. This was well below expectations of 205,000 and marked the biggest fall since July.
Despite all the data we’ve seen over the course of this week, none of it was enough to help the US dollar maintain its position from last week as the top performer. By Thursday USD hit weekly lows against several of its rivals. This includes losses of approximately 0.35%, 1.50%, 0.46% and 0.73% against the euro, sterling, canadian dollar and swiss franc respectively.
On Friday, markets look to the University of Michigan for their latest consumer sentiment data. Usually, if the figures are in alignment with, or better than, market expectations this could give the dollar a boost. However, many are expecting the numbers to edge down slightly.
Next week, investors will be watching closely for how the Federal Reserve’s interest rate decision on Wednesday will impact the currency markets. Last week saw many rush to the dollar after the Fed’s chair told the US Congress that the Fed is primed to increase the pace of rate hikes – “if the totality of the data were to indicate that faster tightening is warranted”, he warned.
Powell also noted that the latest economic data have come in much stronger than anticipated, pointing to the idea that interest rates are likely to increase higher than what markets previously anticipated.
Thoughts from our trading desk:
“Following its top performance last week, the dollar took the spotlight in several client conversations this week. Since the start of February, we have seen GBP depreciate by c.5% versus the US Dollar but since Wednesday last week, bounce by almost half that amount (at time of writing). This has mainly been driven by US interest rate indications but here are few other factors at play:
- 2nd/3rd Feb – US Retails Sales numbers came in stronger-than-expected which indicated the US Federal Reserve had room to increase rates (an increase in IRs is good for the currency as it is high-yielding for investors). That theme generally ran true for most of February.
- 7th March – Talk of increases was further buoyed by confirmation from the FED. As such, USD rallied against GBP pushing the exchange rate into the low 1.18s. The last time GBP/USD hit these levels was November 2022.
- 9th March – Strong UK GDP data released by the ONS which strengthened GBP ( This was the main reason for GBP/USD’s rally since end of last week).
- 13th March – There is now talk of the US Fed having to be less aggressive with rate hikes as authorities stepped in to limit the fallout from the collapse of Silicon Valley Bank.
Markets continue to show see-saw movements and businesses exposed to currency purchases need to be working with a specialist FX provider who can assist at protecting profit margins against such moves.” – Luke Walden, Corporate Partnerships
Businesses exposed to market volatility should have effective risk management strategies in place. Call our team today on 020 7898 0500. We will be delighted to help you mitigate your currency risk.
