empty
 
 
20.03.2023 11:26 AM
Banking crisis makes sterling look better than euro and U.S. dollar

The banking crisis has cast doubt on whether the Fed and other regulators will continue to raise rates to fight inflation or halt the monetary tightening cycle. The Bank of England is no exception. Despite higher inflation rates and average wages in the UK compared to the U.S. and the eurozone, the markets estimate the likelihood of a 25 bps increase in the repo rate to 4.25% or keeping it unchanged at the BoE meeting on March 23 as fifty-fifty.

Even before the U.S. bank failures, MPC members were divided on this issue. Bank of England Governor Andrew Bailey warned the markets against assuming that the BoE needs to do more at this stage. His colleague on the Committee, Catherine Mann, argued that monetary restriction had not yielded results and it was necessary to continue in the same spirit. The sooner, the better. The banking crisis may affect the worldview of central banks, which have to choose between suppressing high inflation and financial stability. That is why the March decision of the Bank of England is on a knife edge.

Estimated dynamics of the repo rate

This image is no longer relevant

The OECD is urging the central bank not to stop and take another step by increasing the cost of borrowing to 4.25%. They said it is not 2008, and the banking system is in a much stronger position now. Is it worth it to stop early? The ECB has proven that it isn't. Christine Lagarde and her colleagues set an example for other central banks by raising the deposit rate by 50 bps, and the Frenchwoman said at a press conference that European banks are as strong as granite.

If the ECB, with its proximity and ties to the troubled Credit Suisse, is not going to slow down the pace of monetary tightening, why should the BoE? The pound was faring better than the U.S. dollar and the euro in the week to March 17, proving that investors are less panicked about the state of the British banking system than its American and European counterparts.

Dynamics of Central Bank Rates

This image is no longer relevant

The slowdown in annual and two-year inflation expectations from 4.8% to 3.7% and from 3.4% to 3%, respectively, speaks in favor of keeping the repo rate at 4%. The former is the lowest since November 2021, while the latter is more than a year low.

This image is no longer relevant

The final verdict of the Bank of England will likely be influenced by statistics on February inflation, which will be released on March 21. Bloomberg experts expect a slowdown in consumer prices from 10.1% to 9.8% year-on-year. The growth rate of core inflation is likely to remain at 5.8%. Their decline will be a pleasant surprise for the BoE, increase the chances of completing the cycle of monetary policy tightening, and put pressure on the pound.

Technically, on the daily chart of GBPUSD, the rebound from the fair value and dynamic support in the form of moving averages allowed to increase the previously formed longs. The targets at 1.235 and 1.26 have not been canceled. The recommendation remains the same—buy.

Marek Petkovich,
Analytical expert of InstaForex
© 2007-2024
通过InstaForex赚取加密货币汇率变动的收益。
下载MetaTrader 4并开启您的第一笔交易。
  • Grand Choice
    Contest by
    InstaForex
    InstaForex always strives to help you
    fulfill your biggest dreams.
    JOIN CONTEST
  • Chancy Deposit
    Deposit your account with $3,000 and get $1000 more!
    In October we raffle $1000 within the Chancy Deposit campaign!
    Get a chance to win by depositing $3,000 to a trading account. Having fulfilled this condition, you become a campaign participant.
    JOIN CONTEST
  • Trade Wise, Win Device
    Top up your account with at least $500, sign up for the contest, and get a chance to win mobile devices.
    JOIN CONTEST
  • 100% Bonus
    Your unique opportunity to get a 100% bonus on your deposit
    GET BONUS
  • 55% Bonus
    Apply for a 55% bonus on your every deposit
    GET BONUS
  • 30% Bonus
    Receive a 30% bonus every time you top up your account
    GET BONUS

推荐文章

现在无法通话?
提出您的问题,用 在线帮助.
Widget callback