GBP/USD Exchange Rate Strengthens amid UBS Rescue of Credit Suisse
The Pound US Dollar (GBP/USD) exchange rate is firming despite the banking sector crisis continuing to spook the markets.
At time of writing the GBP/USD exchange rate is around $1.2222, a 0.39% leap from this morning.
US Dollar (USD) Supported by Softening Market Sentiment
The US Dollar (USD) is trading with mixed success this morning despite a downbeat market mood. With the announcement from the Federal Reserve offering swap lines with four other major central banks in order to make sure liquidity remains, the US Dollar remains under pressure.
The Fed revealed late last night that it would offer US Dollar swaps to the Bank of Japan (BoJ), Bank of Canada (BoC), Swiss National Bank (SNB), and the European Central Bank (ECB). The Fed said in a statement:
‘The network of swap lines among these central banks is a set of available standing facilities and serve as an important liquidity backstop to ease strains in global funding markets.’
Despite the market mood dampening significantly, the fears stemming from the US banking system could be deterring investors.
Looking ahead, amid a thin trading calendar for the next couple of days, USD investors will be keenly watching the banking sector crisis. With a flurry of major interest rate decisions this week, it will be interesting to see how the recent events will influence policymakers. A slowdown in tightening cycles could boost market sentiment but could deter USD investors to more riskier assets.
Pound (GBP) Undermined by Potential Interest Rate Pause
Meanwhile, the Pound is finding renewed strength without a clear motive amidst the banking sector turmoil. With GBP investors looking ahead to both the inflation rate and the Bank of England’s (BoE) interest rate decision, the banking crisis will take centre stage in the meantime.
Keeping a firm lid on Sterling this morning, however, is the possibility of a pause in the interest rate hike cycle. With the ongoing panic in the banking sector, and elevated interest rates now showing signs of impacting the market, central bank policymakers are thinking twice about continuing their monetary policy. The markets are now pricing in a 57% probability that the BoE will leave interest rates unchanged, and a 43% chance of a quarter percent raise.
Looking ahead, the Pound could come under pressure if rate hike bets are slashed further. Any further developments in the banking sector maelstrom could weigh on investors and BoE policymakers. With the latest inflation rate on Wednesday, and the interest rate on Thursday, Sterling could slide if the central bank turns dovish.
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