EUR / USD
The Euro was unable to make further headway after Friday’s European open. ECB council member Kazimir stated that the bank was not on the finishing line on interest rates and that rate hikes needed to continue, but there was no need to speculate on the May rate decision.
Although European bourses opened higher with notable gains, sentiment quickly deteriorated again. As equity markets moved lower, there was net selling in European currencies. The overall losses were, however, limited given that there were also important reservations over US banks.
The University of Michigan consumer confidence index retreated to 63.4 for March from 67.0 the previous month and below consensus forecasts of 67.0. The current conditions component retreated to 66.4 from 70.7 and the expectations component also retreated to 61.5 from 64.7.
The 1-year inflation expectations index retreated to 3.8% from 4.1% while the 5-year expectations edged lower to 2.8% from 2.9%.
The Euro found support on approach to 1.0600 and regained ground with the dollar unable to gain significant support on defensive grounds despite the slide in equities. There was a Euro peak around 1.0680 before settling around 1.0660 with further choppy trading.
Just ahead of Monday’s Asian open, the Swiss authorities announced that UBS had taken over Credit Suisse. Major global central banks also announced co-ordinated action to boost dollar liquidity in global markets. The moves had some impact in easing immediate concerns surrounding the European banking sector and the Euro rallied to test the 1.0700 area. Underlying confidence remained fragile, however, and the Euro was unable to hold above 1.0700 against the dollar. There was a further net retreat to around 1.0650 at Monday’s European open as equities came under renewed pressure with volatility inevitably remaining elevated.
The yen gained renewed support after Friday’s European open as equity markets came under renewed selling pressure and overall risk appetite deteriorated.
Silicon Valley Bank (SVB) stated that it will file for bankruptcy and there was renewed pressure on US regional banks as confidence deteriorated.
Wall Street equities moved lower and there were renewed gains for Treasuries with yields sliding lower. The 2-year yield dipped back below the 4.00% level while the 10-year yield declined to 3.40%. As yields declined, the dollar dipped back below 132.00 against the yen with lows near 131.50 before a tentative recovery.
Markets will be on alert for any unofficial briefings from the Federal Reserve ahead of Wednesday’s policy decision.
Consensus forecasts are for the Fed to increase rates by a further 25 basis points, but expectations remain volatile with no change seen as a 50% chance on Monday as equities dipped again. The dollar hit highs around 132.65 after the move to boost market liquidity, but overall confidence remained fragile and the US currency initially settled close to 132.00 before a fresh slide to lows just below 131.00 in early Europe as global equity markets were subjected to renewed selling.
The latest Bank of England survey recorded a decline in 1-year inflation expectations to 3.9% from 4.8% the previous survey in November while expectations for the following 12 months declined to 3.0% from 3.4%. Long-term expectations also edged lower and the decline will tend to increase central bank confidence that overall expectations are relatively well anchored. Lower expectations could nudge the bank towards a less aggressive stance on interest rates
Sterling was hampered by a fresh slide in equities, but the overall performance was again notably resilient given overall risk trends. It found support close to 1.2100 against the dollar and initially recovered to the 1.2150 area before a fresh advance to the 1.2200 area despite vulnerability surrounding equities..
The Euro was unable to gain any significant traction and settled just above 0.8750 with an unwinding of short Sterling positions.
Sterling gained immediate support from the move to boost dollar liquidity, but was unable to hold above 1.2200 against the dollar while the Euro settled around 0.8760.
The Swiss franc was unable to draw support from the fresh slide in European equites during Friday with choppy overall trading amid reservations surrounding Swiss and global financial developments. The Euro secured a net advance to 0.9875 and the dollar hit 0.9300 before settling around 0.9280.
The UBS move to buy Credit Suisse initially boosted risk appetite, but there were still important reservations surrounding risk while overall confidence in the Swiss economy dipped. The Euro strengthened to the 0.9910 area before a retreat back below 0.9900 while the dollar dipped to 0.9280 before settling around 0.9255.