Gentium FX | Daily Report - 5th May 2023 -Safe Haven Pound Rallies

GBP: The renewed fears in the U.S. banking sector and the expectation that the European Central Bank was approaching the peak of its interest rate hiking cycle have led to an increase in demand for Pound Sterling. This, in turn, implies a potential peak in the Euro. The global markets have experienced a decline following reports of fresh turmoil in some regional lenders. The Pound has been recognised as a beneficiary during times of stress in the U.S. and European banking sectors. Analysts believe that the UK's stable and well-funded banking sector helps protect UK assets such as stocks and Pound Sterling.

EUR: As expected, the European Central Bank (ECB) has raised its key rates by 25 basis points. During the press conference, Christine Lagarde, the ECB President, clarified that the policy tightening would not be paused and that they still had "more ground to cover." Although Lagarde's hawkish comments supported the Euro, the market's risk-averse environment limited the currency's upside. In the meantime, the German data revealed that Factory Orders had dropped by 10.7% on a monthly basis in March, compared to the market expectation of a 2.2% decrease.

USD: Investors are feeling uneasy on the final trading day of the week as they closely monitor the performance of regional bank stocks in the US while waiting for the release of the April jobs report. The end of the Federal Reserve's blackout period on Thursday means that market participants will be watching for comments from policymakers. On Thursday, there was a shift towards safe-haven assets in the financial markets, which helped the US Dollar recover some of its losses from the Fed's recent announcement. Shares of PacWest Bancorp hit an all-time low after the lender revealed talks with potential partners about strategic asset sales. Additionally, the Financial Times reported that Western Alliance was exploring similar options, which led to a sell-off in other regional bank stocks. The forecast for nonfarm payrolls in the US is expected to increase by 179,000 in April following a rise of 236,000 in March. The unemployment rate is projected to remain at 3.5%, and annual wage inflation is predicted to hold steady at 4.2%.

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