BOE rate hike expected but what next?
Sterling had a positive week last week, gaining ground against the beleaguered USD and the Euro. However, as the USD was being battered in relation to the failure of SVB and the emergency refunding of Credit Suisse, the likes of the Aussie and Kiwi dollars had a good week as well. Ostensibly, investors selling the USD sought yields elsewhere. So the GBPUSD rate starts the week just below $1.22 and the GBPEUR rate is up to €1.1430. Most importantly, the week ahead will be a busy one. Not only is there a concerted effort by major central banks to calm markets and stop any further runs on banks by throwing cash at the problem but the pound faces a Bank of England interest rate decision in the midst of this melee. That is on Thursday but we will see UK inflation data on Wednesday and retail sales data on Friday. If that’s not enough to keep you entertained, then you may need help. Re the BOE, most commentators are expecting a 25 basis point hike. It remains to be seen whether the banking disturbances of the last week will have any bearing on their thinking.
USD weaker ahead of Fed meeting
As mentioned above, investors have eased away from the US dollar since SVB bank failed and Credit Suisse was caught in the wash of that. However, a bailout by UBS has calmed nerves a little, although the stability of the Swiss banking sector has been called into question. Hence, the EURUSD rate has risen by a cent to $1.0650. The Euro is also being treated with some caution but more of that is below. Traders are getting prepped for this week’s US Federal Reserve interest rate decision. The US data has mostly been robust of late but, if central banks are planning to pump dollars into the banking system to provide extra liquidity, it would seem an odd decision to tighten monetary policy on the other hand. So, whereas as recently as a week ago, the markets were expecting a 25 basis point hike from the Fed, there is a strong chance they will leave the base rate on hold this week. Whatever their decision, the USD will be volatile this week.
Euro buying stalls on banking concerns
Such is the interconnected nature of European banking arrangements, especially with regard to debt, that the Euro is under a bit of pressure in the wake of the Credit Suisse embarrassment. The President of the European Central Bank will speak a lot over the next couple of days and I am sure the press will be pressing Christine Lagarde for details on the risks associated with that story. For now, though, the GBPEUR rate has risen to €1.1450 and the EURUSD rate has been up to $1.1685, it is half a cent down on that right now.
