Pound hits eight-week high as banking worries recede

First Citizens Bancshares (Tennessee)

29/03/2023 11:23

By Samuel Indyk
       LONDON, March 29 (Reuters) - The British pound hit its
highest level against the dollar in eight weeks on Wednesday as
worries about the health of the global financial system
continued to ease. 
    The pound  GBP=D3  rose 0.1% against the dollar to $1.2359,
its highest since Feb. 2. The euro rose 0.1% against sterling
 EURGBP=D3  to 87.91 pence. 
    The pound's risk-sensitive nature means it was "supported by
the rebound in risk appetite amidst cooling concerns about the
banking sector turmoil", according to George Vessey, FX and
macro strategist at Convera. 
    Markets have been volatile in March following the collapse
of U.S. tech lender Silicon Valley Bank (SVB) and the emergency
takeover of Credit Suisse by banking rival UBS, raising fears of
systemic stress that could lead to more bank failures.  
    But relief swept over markets this week after regional U.S.
lender First Citizens BancShares bought the assets of SVB and
the absence of fresh concerns helped lift confidence among
investors. 
    "Sterling is quite sensitive to risk-on, risk-off moves,"
said Joe Tuckey, head of FX analysis at Argentex.
    "Things are looking finely balanced and if there's another
leg down in U.S. equities you could see safe haven flows into
the dollar and a leg back down in cable (GBP/USD)," he added.   
    Bank of England (BoE) Governor Andrew Bailey said on Tuesday
the central bank was on alert amid global turmoil in the banking
sector, but added Britain was not experiencing stress linked to
the problems at SVB and Credit Suisse.
    "Bailey was suggesting that these have been a couple of
idiosyncratic, bank specific issues," Argentex's Tuckey said.
    "The market is of the sense at the moment that this isn't
going to be some sort of pervasive, systemic banking crisis."
    The BoE raised interest rates by 25 basis points last week,
the 11th increase of the current tightening cycle, but markets
expect the central bank is close to calling time on rate hikes. 
    Traders price in around 14 basis points of tightening at the
BoE's May meeting, implying around a 60% chance of a 25 basis
point hike.  IRPR 

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Graphic: World FX rates in 2023    http://tmsnrt.rs/2egbfVh
Graphic: Trade-weighted sterling since Brexit vote    http://tmsnrt.rs/2hwV9Hv
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 (Reporting by Samuel Indyk
Editing by Mark Potter)
 ((Samuel.Indyk@thomsonreuters.com))