Market Report : 16.03.23

Published: 16/03/2023 By ECAP

Sterling was seen relatively flat this morning following yesterday’s UK Budget, delivered by Jeremy Hunt. The finance minister sought to revitalise Britain's stagnating economy with a mix of childcare and pension reforms to tempt people back to work, as well as corporate tax breaks to boost weak business investment. Confirming, the world's sixth-biggest economy was now set to avoid a recession this year - even if it will still contract – has lent the pound some needed support. Looking forward, the data calendar is thin through to the end of the week, because of this, sterling’s direction may depend on how markets react to the banking turmoil.
The Euro tumbled across the board yesterday on safe-haven buying after Credit Suisse's stock crashed following the disclosure of "weaknesses" in its financial reporting. All European currencies fell sharply against the dollar, with Credit Suisse shares plummeting 24.2%. That, in turn, renewed investor concerns that a full-blown global banking crisis may be brewing. The difficulties in the global banking sector have put the spotlight on the European Central Bank’s meeting later in the session. The ECB had previously signalled the likelihood of another interest rate increase of 50-basis points as underlying Eurozone remained elevated. However, the recent banking turmoil moving closer to home could prompt the policy makers to opt for a more cautious stance. Ultimately, the market now sees a 25-basis point hike as the most likely outcome later today; a dramatic repricing from the near certainty of a 50-basis point hike at the start of the week.

The US Dollar fell slightly against a basket of currencies this morning but was sitting on strong overnight gains following yesterday’s banking turmoil. The dollar index and dollar index futures both fell 0.1% after rallying 1% in overnight trade. The greenback was largely buoyed by safe haven demand, and also saw bids amid increased uncertainty over the path of US monetary policy. Focus is now squarely on a Federal Reserve meeting next week, where the bank is expected to hike interest rates by 25-basis points. However, fears of a brewing bank crisis, after the collapse of three regional US banks, saw traders question whether the Fed will have enough economic headroom to keep raising rates.