Euro on the rise
In Summary
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USD:?Yesterday the Dollar index entered the European session 1.1% lower than at the end of last week as investors moderated their expectations for the overall hiking cycle. Partial role on this repricing played the Friday's jobs report which fell sort of the threshold the FED laid out. However, more important from a market perspective, was the fallout from Silicon Valley Bank and the risk it had of spreading into a systemic financial stability risk within the banking sector. Over the past four trading days, terminal pricing for the Fed has fallen close to 65bps and now sits within the 5-5.25% threshold the Fed had signaled initially with its median dot back in December. Over the weekend, the US Treasury, Federal Reserve and Federal Deposit Insurance Corporation (FDIC) made two major policy announcements intended to stabilize the banking system and mitigate the risk of further deposit outflows after the FDIC closed SVB on Friday without any information for uninsured depositors. Although the major efforts, The US Treasury yields have tumbled and are coming closer to their crucial support. Investors are still remain cautious as the collapse has led to a major sell-off.
EUR:?After the collapse of SVB, the single currency is one of the biggest beneficiaries as the dollar sell-off continues. ECB remains hawkish and looks to hike interest rates by another 50-basis points at its meeting on Thursday after already raising rates by 3 percentage points since July in a bid to tame inflation. Data showing that underlying inflation in the Eurozone ticked higher last month added to concerns that price pressures are proving persistent. Emphasis is going to be on the level of forward guidance, which will likely be distributed via the latest staff projections.?EUR/USD is trading at the level of 1.07 as positive sentiment continues after Paschal Donohoe's remarks that ''Euro zone banks are in good shape , and they have no exposure to SVB''.
GBP:?Sterling out performed the Euro and USD as Friday's GDP figures came by surprise. With the economy more resilient than anticipated, the Chancellor is in a more favorable position for Wednesday's annual fiscal update. HSBC yesterday morning stepped forward and purchased SVB's UK operations for a penny. In light of this crisis, which is seen as now being averted, the pound rallied with GBPUSD up by half a percent and GBPEUR by 0.2pp as markets digested the positive news. This week we expect the budget report on Wednesday and the released of employment and wage data for January.