Pound Euro (GBP/EUR) Fluctuates as World’s Leading Banks Look to Stem Banking Crisis
The Pound Euro (GBP/EUR) exchange rate is trading narrowly as UBS buys Credit Suisse is an effort to curtail the banking crisis.
At time of writing, the GBP/EUR exchange rate is around €1.1448, a 0.25% jump from this morning’s opening levels.
Euro (EUR) Under Pressure as Banking Shares Drop Sharply
The Euro (EUR) is experiencing mixed success this morning amid the volatile banking sector. UBS has agreed to purchase Credit Suisse in an emergency deal that is hoped to stave off panic in the financial sector. However, the move did little to calm the markets as European bank shares plummeted.
European Central Bank (ECB) President Christine Lagarde welcomed the move by UBS and reassured investors that the European banking sector remains strong. She added:
‘The euro area banking sector is resilient, with strong capital and liquidity positions. In any case, our policy toolkit is fully equipped to provide liquidity support to the euro area financial system if needed. And to preserve the smooth transmission of monetary policy.’
Late last night, the world’s top banks announced joint action to boost liquidity with the Federal Reserve. This was to ensure operations would continue to avoid any further banking collapses. The Fed released a statement on Sunday saying:
‘The network of swap lines among these central banks is a set of available standing facilities and serve as an important liquidity backstop to ease strains in global funding markets.’
Pound (GBP) Undermined by Rate Pause Possibility from BoE
Meanwhile, the Pound (GBP) is finding modest strength this morning despite a lack of economic data and the mounting financial sector woes. But the possibility of a pause in interest rate hikes from the Bank of England (BoE) could be capping any further gains.
Amidst the turbulence of the banking sector, the BoE could be deterred from raising interest rates again this week. The markets are now pricing in a 57% chance that the central bank will leave rates unchanged. Whereas a 25bps rate hike probability now sits at 43%.
With interest rates surging across the world at the hands of the major central banks, tensions have only risen in the markets. US government bonds subsequently fell as a result, which caused the knock-on effect that sunk Silicon Valley Bank. With the policy meeting on Thursday, demand for Sterling could sap on reduced rate hike bets.
Pound Euro Exchange Rate Forecast: ECB Speech to Spur the Euro?
Looking ahead, the Pound Euro exchange rate could see further movement with a speech from ECB President Christine Lagarde. With the current concerns of the financial sector, investors will be keen to hear how Lagarde views the situation. And in particular, how it alters the monetary policy outlook.
Meanwhile, another quiet day of data could leave Sterling exposed to market sentiment. Any further developments in the banking crisis could significantly weigh on market sentiment, and the Pound could dip.