Market Report - 28/03/2023
Bank stocks rally sends the Dollar lower; European leaders reassure markets despite banking crisis
The US dollar has seen a considerable sell off in European trading hours on Tuesday morning, sending GBPUSD and EURUSD higher. Despite the steadier tone in the markets reflected in equities and bond yields, which have been ticking higher today, investors are still pricing in about 50 basis points of rate cuts from the Fed by December.
This likely suggests that the stress in the financial sector is seen to be significant enough to leave a damaging mark on the US economy and that probably explains why the dollar remains on the backfoot. However, the lingering anxiety about the health of the global financial system is providing some support to the safe-haven dollar, making it difficult for the likes of the euro and pound to convincingly reclaim yearly highs.
Fears about a deeper banking crisis receded further on Tuesday, giving risky assets another leg up as beaten-down bank stocks attempted a rebound. Concerted efforts by the US Treasury and Federal Reserve to prop up the banking sector seem to be slowly but surely calming nerves about more dominoes falling from SVB’s collapse.
The latest intervention came as it was announced that First Citizens Bank would buy most of Silicon Valley Bank’s assets, while the Fed is considering expanding its emergency lending facility to maximise its support to troubled First Republic Bank.
Meanwhile in Europe, EU leaders provided more reassuring words that the banking sector "is resilient, with strong capital and liquidity positions" after Deutsche Bank’s credit default swaps spiked last week in a worrying sign of ongoing contagion risks.
GBPEUR has remained extremely rangebound on the day, trading between 1.1353-1.1401. This is purely because of the lack of UK and EU data at the start of the week, meaning all big movers would come from geo-political factors rather than economic data.
GBP/USD has managed to build on the previous day gains earlier in the session, however met resistance near 1.2330. On Monday, GBP/USD gained traction as the risk-positive atmosphere amid easing fears over a deepening global financial crisis didn't allow the US Dollar to stay resilient against its major rivals
After having closed in positive territory near 1.0800 on Monday, EUR/USD has continued to stretch higher early Tuesday, already noting highs of near 1.0840. The risk-positive market environment on Monday made it difficult for the US Dollar to keep its footing and allowed EUR/USD to stretch higher.
Additionally, comments from European Central Bank (ECB) officials reiterated their willingness to stay focused on battling inflation. With the above in mind, if you have a requirement that needs quoting, or if you wish for further discussion, please do reach out.