News & Analysis


As expected, yesterday’s testimony from Bank of England representatives to the Treasury Select Committee contained little in the way of new information for markets. Led by BoE Governor Andrew Bailey, discussion focused primarily on the collapse of SVB and the stability of the UK banking sector more broadly. Whilst the pound did initially sell off as testimony began, it ultimately recovered to complete a round trip by the end of the event as Bailey and co succeeded in largely sticking to the expected script. The appearance of Bank members yesterday is due to be followed by the Chancellor Jeremy Hunt today, with discussion of his Spring budget on the cards, and markets looking for clarity on some of the measures proposed last week. Given the political nature of today’s appearance it seems likely to provide more heat than light when it comes to government spending plans, but the rare moment of candour would be welcomed by markets. Outside of parliamentary events, the UK will also get to see a speech by the BoE’s Catherine Mann and the release of February lending data. Whilst coming too early to reflect any tightening of credit conditions in the aftermath of the last months banking concerns, borrowing is expected to contract over coming months, signalling that policy is beginning to weigh on household spending and therefore inflation. An indication in this direction would certainly be welcomed by the BoE, who have a critical rate decision to make at the upcoming meeting, having just raised Bank Rate to 4.25%. In this context Mann’s speech today will be interesting for markets, given her position as the BoE’s most hawkish member. Notably, she voted with the majority in March, opting for just a 0.25% hike, despite some expectations she would prefer a larger hike. Any indication of this dovish pivot being sustained would certainly add credence to the idea that the BoE is finished with its hiking cycle.


No news continues to be good news as far as the financial stability worries in the eurozone are concerned. The subdued price action in bank assets yesterday saw cross-asset price action continue this week’s theme: EURUSD continued to retrace recent losses as it climbed 0.44% amid a rally in front-end yields . With financial stability taking more of a back seat, markets focus can return to issues closer to home, with inflation and monetary policy increasingly the centre of attention for markets. Just in time too, as whilst today should prove something of a respite for markets, they will coon have to contend with this week’s main event: the release of eurozone CPI data beginning tomorrow with Spain and Germany, before culminating on Friday with the French and Eurozone measures. We anticipate that this week’s release of preliminary March data is likely to show that the EU continues to have a core inflation problem with core eurozone CPI expected to print at 5.7%, up from 5.6% prior. The headline numbers, however, might paint something of a rosier picture, with base effects anticipated to weigh on the YoY figure. How exactly markets should parse the data will depend largely on the ECB, where the return to data dependence announced alongside the most recent rate decision places even more emphasis on this release than usual. In this context it was notable that a story from “sources” suggested that Governing Council member Isabel Schanbel suggested a more hawkish approach might have been appropriate at the last ECB meeting. Given that she is speaking at an event at 21:45 BST this evening and in light of the upcoming CPI release, it will be interesting to see if she follows up on these comments or continues to toe the line in public. Before we get to CPI however, today still has a few appetisers for us, with consumer confidence data released this morning for France and Germany. With both figures more or less exactly where they were last month, and the notorious unreliability of this measure, markets have paid the release only minimal attention, with the euro ticking down 0.2% against the dollar to begin this morning’s session. With few speakers and little news, then barring any surprises it should be a quiet day.


The dollar continued to slump in yesterday’s session as Congressional testimonies from the Fed Vice Chair of Supervision, the Chair of the FDIC, and the Treasury Undersecretary didn’t move the needle for US bank stocks. The main takeaway from the Senate hearing was that the Fed was prepared to provide liquidity to SVB during the peak of its deposit outflows via its emergency lending arm, but the ultimate scale of withdrawals set to take place on Friday 10th March ($100bn) meant the measures in place weren’t sufficient and forced the bank into receivership. Beyond that bit of detail, the Senate hearing was largely a non-event for markets despite signalling that tighter regulation is likely in the pipeline for smaller regional banks.

With concerns over the banking sector continuing to recede from their mid-March peak, and with officials offering little reason for this trend to reverse, traders spent yesterday’s session re-entering into risk assets with high beta currencies (NOK, AUD, NZD) leading gains against the greenback in the G10 and popular carry currencies (HUF, CLP) sitting pretty at the top of the expanded majors rankings. This morning, the dollar has consolidated somewhat overnight, but the moves across the G10 are largely contained within recent ranges. Leading losses against a slightly firmer dollar is the Japanese yen, likely due to an unwind in haven positioning on month-end flows, and the Australian dollar after February’s CPI release provided mixed signals and the space for the RBA to pause it’s hiking cycle as early as next week. The bulk of the volatility in FX markets may have occurred overnight, however, as little is scheduled in the data calendar for today beyond the continuation in lawmakers’ post-mortem of SVB’s failure. That said, with month-end drawing closer into purview, volatility may spike around traditional fixing times.


Yesterday, the Canadian dollar posted its second solid rally in a row, bringing it back to where it was trading before Silicon Valley Bank’s collapse led to a safety bid for US dollars. The S&P 500, America’s blue chip stock index, generally serves as a decent bellwether for overall market sentiment. That wasn’t true yesterday, however, as the index fell slightly due to a spike in order flow. As a result, there wasn’t much read through to other markets. Global equity performance excluding the US was bullish, FX markets traded in risk-on mode, and investors sold bonds. Meanwhile, the crude oil rally also continued, cracking the $73 handle on WTI. While it didn’t impact FX markets, the Federal government released their 2023 budget. As opposed to last fall’s projection of a $4.5 billion dollar surplus by 2027, the government now expects to run deficits for the next 5 years. This year, the deficit is expected to total $43bn, or 6% of GDP. For comparison’s sake, from 2000 to 2019, the average budget balance was -0.2% of GDP. As usual, the government is projecting a declining ratio of debt to GDP, but it is not known for sticking to its projections. If the Canadian economy tips into a mild recession this year, the government will likely reload its fiscal guns with another magazine. The bulk of new spending this year is concentrated in health care and clean energy, the latter of which mostly consists of subsidies meant to convince clean technology companies to set up shop in Canada. Over the next 5 years, the budget’s projections suggest that much of the new program spending ($35bn) will be allocated to benefits for the elderly.

FX Elsewhere

The Hungarian forint led gains within the expanded majors space yesterday as the National Bank of Hungary kept all aspects of its policy framework on hold. What was most influential for markets wasn’t just the decision on rates, and specifically the decision to keep the emergency one-day deposit rate at 18%, but the central bank’s communication which relayed a cautious tone. Coupled with an upward revision to their 2024 inflation forecast from 2.3-4.5% to 3.0-5.0%, the NBH’s expressed preference for a more cautious policy stance amid heightened market volatility pushed back expectations of policy easing this year. With the overall risk environment fairly stable yesterday, the green light from the NBH saw traders pile back into one of this year’s favoured carry trades, resulting in HUF appreciating 2% on the day.



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