GBP/USD Turns Cautious Ahead of Risk Events
GBP/USD Analysis
The recent collapse of the Silicon Valley Bank has rattled financial markets and the confidence crisis has spread on the other side of the Atlantic, with authorities trying to contain the fallout. On Sunday, UBS agreed to buy the embattled Credit Suisse, which had emerged the next liability for the next liability of the banking sector. [1]
The Bank of England welcomed the deal, stressing though that the UK banking system is "well capitalised and funded, and remains safe and sound" [2]. Along with the US Fed and four more central banks, coordinated action was taken to enhance US Dollar liquidity and "ease strains in global funding markets". [3]
The European Central Bank (ECB) did not blink last week and raised rates by 50 basis points, but the high uncertainty may force central banks to moderate or even pause their tightening efforts. The US Fed decides on Wednesday, with CME's Fed Watch Tool projecting a 25 basis points increase [4]. The Bank of England which takes up the baton on Thursday, had softened its rhetoric during the last decision, but did not rule out more tightening.
The moderated expectations around the Fed have weighed on the greenback and have narrowed the policy differential with the BoE, helping GBP/USD to rebound from its 2023 lows. This has brought 1.2249 in the spotlight, but we remain cautious for its ability to take out this level and open and look towards 1.2667.
Despite the recent advance and the robust actions by authorities to safeguard the financial system, markets appear on edge ahead of the afformentioned upcoming risk events. GBP/USD comes under pressure today, which creates risk for a breach of the EMA200. Daily closed below it would shift bias to the downside, but catalyst would be needed for that and for further losses towards 1.1801.
Nikos Tzabouras
Senior Market Specialist
Nikos Tzabouras is a graduate of the Department of International & European Economic Studies at the Athens University of Economics and Business. He has a long time presence at FXCM, as he joined the company in 2011. He has served from multiple positions, but specializes in financial market analysis and commentary.
With his educational background in international relations, he emphasizes not only on Technical Analysis but also in Fundamental Analysis and Geopolitics – which have been having increasing impact on financial markets. He has longtime experience in market analysis and as a host of educational trading courses via online and in-person sessions and conferences.
References
| Retrieved 21 Mar 2023 https://www.ubs.com/global/en/media/display-page-ndp/en-20230319-tree.html | |
| Retrieved 21 Mar 2023 https://www.bankofengland.co.uk/news/2023/march/boe-statement-credit-suisse | |
| Retrieved 21 Mar 2023 https://www.federalreserve.gov/newsevents/pressreleases/monetary20230319a.htm | |
| Retrieved 26 May 2023 https://www.cmegroup.com/markets/interest-rates/cme-fedwatch-tool.html |
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