Published: 27/03/2023 By ECAPSterling witnessed some volatility last week as turmoil in the financial markets and central bank interest rate decisions caused significant turbulence. The BOE’s decision to raise interest rates by 25-basis points saw the pound fluctuate marginally higher as the bank was not as dovish as some investor had expected. Looking forward, the next big data print will be the GDP growth rate which will be released on this coming, Friday. Ultimately, while fundamentals remain the prominent driver of price action, fears of further contagion in the banking sector have kept policymakers and individuals on high alert.
The Euro held its ground throughout all of last week’s banking turmoil as Christine Lagarde continues to cement her credentials as the biggest hawk among major central bankers. The president of the European Central Bank last week declared that getting euro-area inflation back on target is “non-negotiable” and won’t involve “trade-offs”, days after she boosted interest rates by 50-basis points. Looking forward, the Eurozone is to release what will be closely watched inflation data on Friday. While headline inflation is expected to slow, the underlying rate of inflation, which strips out volatile elements including food and fuel prices, is expected to accelerate. Moreover, Bundesbank chief Joachim Nagel is due to speak today, and ECB President Christine Lagarde is to make a speech in Frankfurt tomorrow. Ultimately, investors will be on the lookout for any indications on how policymakers are viewing the inflation threat amid ongoing turmoil in the banking sector.
The Dollar steadied against a basket of currencies as investors assessed moves made by authorities and regulators to rein in worries over the global banking system. On Friday, the US Financial Stability Oversight Council said the US banking system was "sound and resilient" despite stress on some institutions. However, pragmatic action by central banks, governments, and the private sector have thus far been insufficient to allow investors to be confident that the problem is ring-fenced. Fed Chair Jerome Powell took a cautious stance on the outlook of future Fed hikes because of the banking sector turmoil. Ultimately, markets are pricing in an 87% chance of the Fed's standing pat on interest rates in its next meeting in May and anticipate a rate cut as early as July.