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ECB asking EU banks about interest rate hedges

Good morning


All reasonably quiet in the currency markets, EURUSD and GBPUSD had dipped yesterday afternoon reaching 1.0965 and 1.2390 respectively, but as I type we are seeing some USD selling taking the two pairs to 1.1020 and 1.2450.


I mentioned renewed concerns over the US regional bank First Republic, but what I hadn’t expected was a halving of their share price from $16.00 to $8.00 yesterday. As with SVB, it reaches a point where continuing business could become nigh on impossible. The banking crisis is far from over as investors continue to withdraw cash from any institution deemed at risk, which in turn compounds any pressures those banks are facing.


ECB are now asking EU banks not only whether they have hedged against interest rate risk but also which counterparties they had backed off their risk with. With ECB officials still talking up the chance of more rate rises, there are clear concerns that EU banks may face the same issues the US banks have faced.


BoEs Pill has said UK citizens need to accept they are poorer amid rising prices, rather than demand higher wages which Pill says will only prolong the pain of higher inflation.


Mixed Aussie inflation numbers overnight has seen AUD slip a little with GBPAUD now up at 1.8825, another new high since Feb 2022. RBA have already said they think inflation has peaked, market pricing in no change for the next RBA rate meeting next week. UBS take a different view, they see a chance RBA will raise rates again next week despite the slight dip in Q1. Maybe worth buying a cheap one week upside AUD just in case, the 3 May 0.6700 AUDUSD call cost just 15 usd pips (ie £1200 per AUD1m notional, or the same expiry 1.8700 GBPAUD put costs £1500 per AUD1m notional.


It’s a very light calendar today with really just US durable goods on the table. Our structured currency purchase programs see positions for April expire today. It has been a while since I sent results to those not participating in the programs, but they do still run and have performed well during the market turmoil at the tail end of last year, into this year.

Arsenal take on Man City this evening in what is touted as the key match in the title race, particularly after Arsenal’s failure to beat last place Southampton on Friday. This has the potential to be a great match with two teams who have both played some attractive, flowing and high-scoring football this season. It isn’t quite make or break for the title but the winner will certainly walk away knowing they have the upper hand.



- 13.30 US durable goods orders



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