The Pound Euro exchange rate rallied this week, the pairing even briefly striking a new three-month high, as the Euro was rocked by European bank share rout.
Euro plunges amid European banking selloff
The Pound Euro exchange rate raced higher this week amid the emergence of a crisis in the European banking sector.
Shares in Swiss banking giant Credit Suisse fell 30% to a new record low. Contagion fears then sent shares in other European banks lower as well and saw the Euro nosedive in the middle of the week.
The selloff came just as the European Central Bank’s (ECB) March policy meeting got underway. Reinforcing the EUR slump amid fears it could impact the bank’s interest rate decision.
The ECB ultimately opted to raise rates by 50bps as forecast. However ECB President Christine Lagarde’s subsequent comments indicated future hikes would be data-dependant, leading the Euro to consolidate its losses.
Meanwhile, the Pound initially strengthened this week. Easing Federal Reserve interest rate expectations helped to dampen fears regarding policy divergence between the US central bank and the Bank of England (BoE).
After wobbling on the back of weaker-than-expected wage growth figures, the Pound then stabilised as UK Chancellor Jeremy Hunt unveiled his Spring Budget.
Hunt claimed the measures outlined would support UK growth, while also announcing the UK should avoid a technical recession in 2023.
Sterling was then left without any strong directional direction through the remainder of the session amid the absence of any notable UK data.
BoE rate decision in the spotlight
Turning to next week’s session the highlight will likely be the BoE’s latest interest rate decision.
While consensus estimates predict the bank will deliver a 25bps hike this month, this is far from certain in light of recent comments from Governor Andrew Bailey in addition to currency market instability.
If the BoE surprises by leaving rates on hold this could see the Pound crater next week.
Meanwhile, the situation in Europe’s banking sector may continue to act as a key catalyst for the Euro. If the drama dies down EUR exchange rates could bounce back.
On the data front, the single currency may be influenced by the Eurozone’s latest PMI figures. Will rising activity in the bloc’s private sector reflect positively on the Euro?
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