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  • richard evans

Improving risk sentiment leads to lower USD

Good morning

An ongoing improvement in risk sentiment has seen stocks show gains and further USD weakness against GBP and EUR, those currently trading at 1.2325 and 1.0815 respectively, not yet matching last weeks highs but for GBP at least, not far off. GBPEUR up at 1.1390, while the likes of GBPAUD pushed yesterday evening to almost 1.8500, highest level since Feb 2022, pre-Ukraine invasion. GBP given some support by BoEs Bailey who said the economy is looking more resilient, further rate rises will most likely be required although the peak would probably be below pre-financial crisis levels.

There seem to be several banks looking for further USD weakness into the month-end (and quarter-end). A lot of downside interest in USDJPY remains, but with EUR lagging a bit behind GBP there is also some looking for higher EURUSD. This greatly depends on whether the banking crisis subsides or whether we see renewed risk in the sector.

The banking crisis is far from over, the market seems to be seeking out the next potential victim. Bloomberg are looking at Charles Schwab, more brokerage than bank but still its shares had dropped 40% at one stage earlier this month, currently down just over 25% from its 8th March close. It is thought their client base could have withdrawn money to seek out high interest rates, but some eye the number of long-dated bonds on their balance sheet which last year showed an unrealised loss of $29bn. Meanwhile First Citizens, another US bank that until recently we probably hadn’t heard of, has bought up the remaining assets of SVB.

In Europe, EU have held back a EUR19bn Covid payment to Italy, awaiting some details of how their pandemic recovery plan is progressing. I’m not sure how expected this was but it certainly makes for some worrying headlines. I’m sure they’ll find a way to get the money there eventually.

Obviously some sad news doing the rounds. Of course we have the Ukraine invasion and Putins nuclear threats, but reports of a US school shooting yesterday which claimed the lives of six people including three young children really did hit home. One other piece of news that seems to have stayed broadly out of the major headlines is the unrest in Israel, where citizens are uprising against Netanyahu and his proposed changes to their judicial system. I’m no expert in this but have read that the current judicial system, a generally unelected institution, does keep a check on how the government uses its power. Reforms could make it much easier for the government to pass new laws.

One other area of concern that has managed to pass us by was the asteroid 2023 DZ2 that passed between the earth and the moon over the weekend. It was some 40-90 metres across, bit enough to be regarded as a city-killer. It came within a relatively small 175,000km of earth. Now, it seems we were in little danger but for me the most worrying part is this was only discovered one month ago. I presumed we had satellites that searched for and monitored things like this. Anyway, it will be returning in 2026 but the idea is that we won’t be at risk then either. Mind you there was talk that another asteroid could hit earth on 14th Feb 2046 but that is now expected to miss by some 4.3 million km. That’s quite a wild difference. Lets hope they’re right!

- 13.00 ECBs Nagel speaks

- 15.00 US consumer confidence

- 00.30 AUS monthly CPI

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