GBP/USD Exchange Rate Firms as Banking Sector Fears Temper Rate Hike Expectations
(Updated 16/3/23, 16:00)
The Pound US Dollar (GBP/USD) exchange rate is strengthening modestly as the fallout from the Silicon Valley Bank (SVB) and Credit Suisse collapses have forced the Federal Reserve to reassess their monetary policy. With regional US bank First Republic shares tumbling by almost 20%, reports of a joint rescue from some of the biggest banks in the US are weighing on investors’ minds. Fears of a banking contagion have returned to the fray, sapping demand for the ‘Greenback’.
At time of writing, the GBP/USD exchange rate is around $1.2113, a 0.38% climb from this morning’s opening levels.
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Pound US Dollar (GBP/USD) Exchange Rate Wavers on Retreating Bank Contagion Worries
The Pound US Dollar exchange rate is trading narrowly this morning as yesterday’s market volatility calms in the wake of fresh reassurances.
At time of writing, the GBP/USD exchange rate is around $1.2071, relatively unchanged from this morning’s opening levels.
US Dollar (USD) Undermined by Improving Risk Sentiment
The US Dollar is struggling for demand in the wake of vastly improving risk appetite. After the ‘Greenback’ rallied on concerns over bank contagion, momentum came to an end with reassurances from Credit Suisse investors.
Saudi National Bank, Credit Suisse’s biggest investor, calmed market jitters when Chairman Ammar Al Khudairy commented that the turmoil was unwarranted. He also said that regulators were prepared to step in and plug any gaps. Al Khudairy added:
‘If you look at how the entire banking sector has dropped, unfortunately, a lot of people were just looking for excuses. It’s panic, a little bit of panic. I believe completely unwarranted, whether it be for Credit Suisse or for the entire market.’
Further calming investors, and stemming safe-haven flows, was a statement from the Swiss National Bank (SNB) and the Swiss Financial Market Supervisory Authority (FINMA). Additional liquidity will be offered to Credit Suisse to avoid further catastrophe. Credit Suisse’s CEO, Ulrich Koerner, said:
‘These measures demonstrate decisive action to strengthen Credit Suisse as we continue our strategic transformation to deliver value to our clients and other stakeholders.
‘We thank the SNB and FINMA as we execute our strategic transformation. My team and I are resolved to move forward rapidly to deliver a simpler and more focused bank built around client needs.’
Pound (GBP) Quiet as Medium-Term Fiscal Challenges Remain
The Pound (GBP) is struggling for demand this morning amid a mixed reception from the Chancellor’s Spring Budget and the latest forecasts from the Office for Budget Responsibility (OBR). With fears over falling living standards despite an upwardly revised economic outlook, GBP investors remain cautious.
Despite fears over the banking sector turbulence, investors are now gearing up for a potential pausing in the Bank of England’s (BoE) tightening cycle. James Smith, analyst at ING, believes that the probability of the central bank going through with a 25bps hike appear to be slipping. He added:
‘While the feedthrough to the UK is still unclear, beyond global moves in asset prices, the BoE has made it clear that the bar to pausing rate hikes is now fairly low – certainly lower than the Fed and ECB have recently been indicating. The chances of ‘no change’ are much higher than they were last week.’
Pound US Dollar Exchange Rate Forecast: Market Sentiment to Weigh on Sterling?
Looking ahead, the Pound US Dollar exchange rate could see further movement without impact from economic data. A thin trading calendar for the rest of the week will leave the Pound vulnerable to domestic pressures and market sentiment. Pared BoE rate hike bets could weigh on Sterling further.
Meanwhile, a flurry of minor data for the ‘Greenback’ might not hold much sway for the US Dollar. Instead, the ongoing banking sector situation could be far more impactful. Any further updates could weigh on market sentiment, and in turn the ‘Greenback’.