Market Report : 30.03.23

Published: 30/03/2023 By ECAP

Sterling pulled back from the highest level against the dollar in eight weeks yesterday, as worries about the health of the global financial system continued to ease. Investors and global markets took solace from First Citizens Bank's agreement to buy all of the failed lender Silicon Valley Bank's deposits and loans. Meanwhile, on the domestic front, recently better-than-expected UK economic data may have provided some recent support as well, however, talks of a policy pause has potentially made the market nervous.
Europe’s share currency continues to draw support from the recent hawkish commentary by several European Central Bank members, saying that interest rates will likely have to rise further to contain inflation. Lane added that a recession is not necessary to bring inflation down and a soft landing of the economy was possible. Separately, Slovak central bank chief Peter Kazimir noted the ECB should not change its stance on rates, though advocated the case for slower rises following three straight 50 bps hikes. Nevertheless, the prospects for further policy tightening by the ECB seems to hold back traders from placing aggressive bearish bets around the euro.

The US dollar edged lower in early European trade this morning, but volatility is limited ahead of weekly employment and quarterly growth data which could provide clues for future Federal Reserve action. The Dollar Index traded just lower at 102.260 and is on course to drop 2% in March. For now, receding concerns over the banking sector have resulted in traders switching their attention to the Federal Reserve's battle against inflation. Ultimately, markets are pricing in a 60% chance of the Fed standing pat on interest rates in May, according to the CME Fed Watch tool. However, that number was a lot higher last week in the midst of the banking crisis.