GBP/USD Fluctuates as Markets Shake off Jitters
(Updated 16/3/23, 9:00)
The Pound US Dollar (GBP/USD) exchange rate is trading narrowly this morning after the markets have calmed down considerably after yesterday’s fears of Credit Suisse collapsing. The Swiss bank’s biggest investor, Saudi National Bank, offered reassurances as Chairman Ammar Al Khudairy said the panic was unwarranted. He also added that regulators would ‘plug holes when they appear’. Further allaying fears was a statement from the Swiss National Bank (SNB) and the Swiss Financial Market Supervisory Authority (FINMA). Stating that liquidity will be provided if needed, concerns over further collapse have now been tempered.
At time of writing, the GBP/USD exchange rate is around $1.2087, relatively unchanged from this morning’s opening levels, but still over a half percent down from this time yesterday.
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GBP/USD Plunges as Credit Suisse Shares Fall to Record Low
(Updated 15/3/23, 16:00)
The Pound US Dollar (GBP/USD) exchange rate is tumbling this afternoon as Credit Suisse shares plunged by 30%, a fresh record low. Fears grow of a wider banking sector problem are seeing risk-aversion soar, bolstering the safe-haven US Dollar. Despite delivering the Spring Budget with renewed optimism surrounding the flagging UK economy, Sterling failed to find demand.
At time of writing, the GBP/USD exchange rate is around $1.2028, over a 1% crash from this morning’s opening levels.
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Pound US Dollar (GBP/USD) Exchange Rate Weakens Despite UK Government Extending Energy Support
The Pound US Dollar exchange rate is softening as investors await the Spring Budget. With extended energy support for UK businesses and households already announced, investors are hoping for further economic boosts.
Pound (GBP) Quiet Despite Early Budget Boosts
The Pound (GBP) is subdued ahead of the Spring Budget from Chancellor Jeremy Hunt this afternoon. However, the Treasury has announced extending the Energy Price Guarantee (EPG) scheme. Both businesses and households will be protected until at least June, protecting from surging energy prices.
With concerns mounting of the EPG ending in April, threatening to plunge thousands of households and businesses into poverty, the U-turn from the Treasury cheered investors. Hunt commented:
‘High energy bills are one of the biggest worries for families, which is why we’re maintaining the energy price guarantee at its current level.
‘With energy bills set to fall from July onwards, this temporary change will bridge the gap and ease the pressure on families, while also helping to lower inflation too.’
Further supporting the Pound is an expected revision of the UK’s economic forecast from the Office for Budget Responsibility (OBR). The OBR is predicted to slash its inflation forecast for 2023 to 4% from 7%. The move could provide a more optimistic outlook for the UK. Combined with a much-improved government borrowing situation, Hunt has more breathing room to provide further support for businesses and households.
US Dollar (USD) Firming Despite Investor Caution
Meanwhile, the US Dollar is enjoying renewed strength ahead of key data released later today. In light of the Silicon Valley Bank (SVB) collapse, the market expects the Federal Reserve to take a more measured approach to further interest rate hikes.
With US inflation easing to 6%, meeting expectations, rate hike bets were tempered. However, with the SVB collapse, fears grew of the Fed’s aggressive rate hike cycle potentially causing further damage. It is now expected that the central bank could be more cautious over future increases. At present, the CME Group FedWatch Tool has priced in a 82% probability of the Fed raising interest rates by 25bps.
With retail sales and PPI data released today, any further evidence that inflationary pressures are easing could pare bets further.
Pound US Dollar Exchange Rate Forecast: Updated OBR Forecast to Boost the Pound?
Looking ahead, the Pound US Dollar exchange rate could see a boost if Hunt outlines further economy-boosting measures in his Spring Budget. However, the updated growth forecast from the OBR could also influence proceedings. An expected improvement in 2023 growth forecasts could buoy investors, but projections beyond could deteriorate.
Elsewhere, US retail sales are expected to show substantially slower growth, as it is expected to have declined by 0.3% MoM. PPI inflation is also predicted to slow further, in line with yesterday’s easing headline CPI. The US Dollar could come under increased pressure if data prints to forecast amid reduced rate hike expectations.