Relief rally for Pound and Euro vs Dollar

17 Mar 2023

Sterling and the Euro have nearly reversed all previous losses against the Dollar on Friday, as market worries over the banking sectors in the US and Europe looked to diminish, leading a relief rally in certain assets.

Pound Sterling Live reports that the Pound was trading back above the 1.21 level against the greenback on Friday after rising from 1.20 midweek. 

The upbeat performance on Friday from the Sterling came as European stock markets looked to further build on Thursday’s recovery. This was boosted by reports of syndicated financing for a US lender, the news of which rippled throughout financial markets. 

“A rescue package for First Republic Bank calmed nerves about spreading bank runs. A group of the US’s largest banks will deposit $US30bn for at least 120 days,” said the head of international economics at Commonwealth Bank of Australia, Joseph Capurso.

The financing was provided by Bank of America, Citigroup, JPMorgan Chase, Wells Fargo, Goldman Sachs, Morgan Stanley, Bank of New York Mellon, PNC Bank, State Street, Truist, and US Bank, to boost confidence in First Republic Bank.

“Today, 11 banks announced $30 billion in deposits into First Republic Bank. This show of support by a group of large banks is most welcome and demonstrates the resilience of the banking system,” said the US Treasury, Federal Reserve and Federal Deposit Insurance Corporation (FDIC) in a statement on Thursday.

In addition, the Pound and other currencies were buoyed by news the Swiss National Bank (SNB) would provide a $54 billion short-term liquidity facility for Credit Suisse.

Furthermore, stock market volatility this week was a leading influence on the Pound ahead of next week’s inflation data and Bank of England rate decision.

“Markets probably deem the UK banking sector less exposed than the eurozone one and are punishing the Euro much more than the Pound when risks to the Swiss lender escalate,” according to Francesco Pesole, ING FX strategist. 

“The ECB hike may have slightly increased the chances of the Bank of England delivering a 25bp hike next week. Our base case is a hike, although it’s admittedly a close call as we acknowledge it will depend on financial market developments and CPI numbers,” he added.