Gentium FX | Daily Report - 31st March 2023 - Pound Remains Strongest Performing Currency

GBP: Sterling is expected to be the strongest performing currency in the first quarter of 2023, having risen by 2.5% against the US dollar. This is due to both the positive economic outlook and the market's belief that the Bank of England will continue to increase interest rates. Although Bank of England Governor Andrew Bailey made comments on Monday that supported this view, economic data will ultimately support the need for further tightening. The recently revised fourth-quarter GDP data, which showed strong growth, is likely too old to have a significant impact on this decision. Despite financial uncertainty, markets are favouring currencies that are expected to benefit from domestic tightening, and the Pound is one of them. The rate against the Dollar is approaching its highest point since December 2022.

EUR: On Thursday, during the American session, the EUR/USD exchange rate rose above 1.0900 before entering a consolidation phase during the Asian session on Friday. Earlier on the same day, Germany released data indicating a 1.3% monthly decline in retail sales in February. This figure was significantly worse than the market's expectation of a 0.5% increase, but it was mostly disregarded by traders. Today, we should pay attention to several speakers from the European Central Bank, including President Christine Lagarde, Latvia's Martins Kazaks, Italy's Ignazio Visco, and Croatia's Boris Vujcic. The Euro continues to show resilience.

USD: On Thursday, the US Dollar continued to lose ground against other currencies as risk sentiment remained the dominant factor in financial markets. Interestingly, we are witnessing the weakening of the Dollar again, even as the market is pricing in a higher probability of a rate hike by the Federal Reserve in May, with a 60% chance currently priced in. Additionally, evidence suggests that the liquidity conditions among US banks are improving, with outstanding borrowing by US institutions declining from $163.9bn to $152.6bn over the past week. Today, we will hear from two voting members of the Federal Open Market Committee (FOMC), John Williams and Lisa Cook, who are not known for their hawkish views. Any indication from them of a leaning towards more rate hikes could have an impact on the market. In terms of data, the focus will be on February's PCE deflator, which is the Fed's preferred measure of inflation.?

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