Powell sees higher terminal rate bringing strength to the dollar, BOE may raise rates further as tighter policy has limited impact, RBA hints that rate pause is on horizon.
March 8, 2023
Rates are not real time. Rates are today's indicative mid-market rates as of time of publishing, which may vary. Please contact SVB for a current quote.
GBP/USD 1.1837 GBP/EUR 1.1227 EUR/USD 1.0544 USD/CAD 1.3756 EUR/CHF 0.9937 EUR/SEK 11.3001 EUR/NOK 11.2563 EUR/DKK 7.4425 USD/ILS 3.6068 AUD/USD 0.6606 NZD/USD 0.6123 USD/SGD 1.3539 USD/JPY 137.59 USD/CNH 6.9757 USD/INR 82.0213 EUR/ILS 3.8029 GBP/ILS 4.2694 USD/ZAR 18.6445
Some see the Bank of England continuing to take interest rates higher through 2023 driven by two dynamics. Inflation may not moderate as quickly as initially hoped, and the impact of monetary tightening may be smaller than anticipated. This is supported by some upticks in GDP and retail sales against the consensus through recent months.
There has been a political debate kicked off by the Labour appointment of senior civil servant Sue Gray. Having been an influential impartial civil servant and famously authored the investigation into partygate, her move to the partisan world has stoked flurries of questions. On the other side of the commons, the Tories are concerned that her closeness to sensitive government operations could be damaging in the hands of the opposition.
GBPUSD lost ground against the dollar yesterday, falling 1.7%.EUR
German industrial production gained 3.5% MoM for January, after declining 2.4% in December, whilst construction activity climbed 12.6%, boosted by milder temperatures during the month. The strong print is a welcome news for the German economy, reducing recessionary concerns for Q1. Retail sales however disappointed for the bloc’s engine room, declining 0.3% for the month, against expectations of a 2.3% gain. Focus shifts to GDP figures from the Euro Area today and comments from ECB President Lagarde.
The euro is trading at two-month lows against the Dollar, falling 1.3% over the course of Tuesday to trade just below 1.0550 at time of writing. The decline comes amid broad dollar strength following Jerome Powell’s testimony to congress, endorsing further rate hikes. Sentiment appeared to be matched across the pond, with ECB policy member Klaas Knot yesterday suggesting rate hikes may continue for “quite some time” after March.USD
Jerome Powell’s testimony rattled FX markets as he said that inflation risks are still tilted to the upside, he also stated that policymakers are prepared to increase the pace of rate hikes if needed. Off the back of this, market pricing of the Federal Reserves terminal rate jumped to 5.5% from 5.25%. This translated into a return of greenback strength, with the dollar spot index climbing 1.2% since Powell started his testimony. US equities suffered as markets adjusted their interest rate expectations, the NASDAQ and S&P500 closed -1.25% and -1.53% respectively.ASIA/PACIFIC
The Australian Dollar trades at the lowest levels since November against the US dollar, as RBA Governor Philip Lowe cited the central bank was nearing the point where a pause in rate hikes may be appropriate, contrasting Jerome Powell’s stance to continue with tightening policy aggressively. AUD lost 2%, amongst the worst G10 performers, whilst the Australian 10-year yield lost as much as 7bps following Lowe’s comments.
Emerging market currencies declined on the Fed outlook, with the MSCI Index losing as much as 1.6%. The Chinese central bank set a higher-than-expected fixing rate however, at 56pips above estimates, the largest strengthening bias since 6th Feb. The fix highlights the People’s Bank of Chinas intention to support the Yuan, after the currency weakened toward 7 against the dollar for the first time in 2023.ILS
Israeli markets open once again following the Purim holiday. Israel’s foreign reserves fell to $196 billion from $201 billion in January.Data & Events
Powell’s testimony continues
Euro-Area 4Q GDP
ECB Lagarde/Panetta speak
US Trade Balance
BOC rate decision
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