IFX Market Report: Tuesday 21st March 2023

A variety of news and data over the past few days has strengthened the pound across the board. Banking, interest rates and housing data are all contributors as the UK continues to defy many of the pessimists who have been talking down the UK economy of late.

The main focal point over the past few weeks has been in the banking sector, where recently SVB were the first major player to cease trading in the U.S, and the UK arm thankfully being bailed out and taken over by HSBC. Over the past few days UBS have announced that they have purchased Credit Suisse for $3.25bn, however the Swiss authorities have caused uproar by allowing the shareholders of Credit Suisse to receive $3bn but wipe out AT1 Bond holders which equates to $17bn. The number lost makes the $1.7bn lost by bondholders when Spain’s Banco Popular was bailed out in 2017 seem minuscule.

The BOE insist that UK banks are safe and in a good place despite share prices on banks falling through investor caution. However, ex 2008 BOE policymaker David Blanchflower thinks that interest rates should be cut instead of selling bonds. Expectations however are that the BOE will either raise rates by 0.25% or maintain them at the current 4% level this coming Thursday.
House prices in the UK have continued to defy predictions after they rose by 0.8% compared to February. Analysts predicted a 10% rise this year as interest rates make it less affordable for people to buy a home.

Government borrowing, the difference between spending and tax income was £16.7bn which was better than expected, largely down to spending on Energy schemes.

Despite the recent U.S banking issues, around 65% of analysts still believe the economy will land softly or accelerate. One thing that may be held back slightly in the short term is the pull-down on inflation, as the FED may feel the need to halt any further rate hikes whilst the banking sector hopefully calms.

GBPUSD currently resides at 1.2250
GBPEUR currently resides at 1.1410
EURUSD currently resides at 1.0740

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