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Currency Market Update - 15th March 2023

Currency Market UpdateThe main highlight of the past few days has been the failure of the tech startup-focused SVB and the crypto focussed Signature Bank – Sweden’s largest pension fund (also known as Alecta).

Both the Federal Reserve and the Biden administration have agreed to cover the loss of depositors’ funds, which amount to more than $1Billion. The main cause and effect of the collapse are attributed to rising interest rates by the Federal Reserve, which saw a high percentage of government bonds plunge in value and the announcement that the bank was trying to raise money sparked a rush by investors looking to withdraw their money.

Unsurprisingly, the Dollar lost more than 1% against both the Pound & Euro and other major currencies as markets bet that the Federal Reserve will slow down if not halt raising rates in its next IR meeting.
The Dollar index lost 0.59% on short-dated 2-year treasury yields and the Federal Reserve now needs to reprice its outlook – it’s Terminal Rate for December has now dropped from above 5% last week, to 3.84%.

So far this week:

UK Employment Change (DEC) showed 13K more people in work than forecasted and Unemployment Rate (JAN) released 0.1% better than forecast at 3.7%. Whilst both data are positive, the UK labour market is ‘tight’ at the moment, which indicates a rate hike is likely next Thursday, (last week’s GDP growth of 0.3% in January was positive news, yet the outlook for Pound against Euro and Dollar remains fragile).

CPI figures in the USA, both Core Inflation YoY (FEB) and Inflation Rate YoY (FEB) came out on forecast at 5.5% and 6% respectively. We know from the Federal Chair Jerome Powell’s recent statement that CPI is 1 of the 3 key data sets that will determine the direction and rate of hike for the Federal Reserve. A Reuters report released yesterday is predicting 25 basis points hike for both March and May. There is a 15% chance of no rate movement and an increase to the benchmark rate to between 4.75%- 5%.

The main data releasing today:

UK Spring Budget

USA- PPI MoM (FEB) forecast at 0.3% - (January saw an 8.7% YoY increase in PPI)

USA- Retail Sales MoM (FEB) is forecast to drop by 3.3% to -0.3% - Sales figures for Feb are usually lower as inflation slows consumer spending. (January saw MoM figures up by 3% from December and 6.4% YoY increase from January 2022).

USA- MBA 30 Year Mortgage Rate (MAR/10)- No forecast but Mortgage Rates have been falling in recent times- January saw 30-year fixed rate mortgage rates drop to 6.23%- a 19 basis point drop as inflation was seen to have peaked and treasury yields dropping.
USA- MBA Mortgage Applications (MAR/10)- No forecast provided yet mortgage applications have dropped to 5.7% recently- a 28 year low as rising interest rates has deterred many homebuyers.

The main data releases for the rest of the week include:
ECB Interest Rate decision on Thursday & EU Inflation Data on Friday.



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