The global banking sector has been a significant focus for investors lately. Bank of England Governor Bailey has tried reassuring the market by stating that the UK banking sector is well-placed to handle global banking concerns. However, UK inflation is currently very sticky and remains in double digits at 10.4% and with only one more hike in the foreseeable investors will be cautious of buying sterling.
Eurozone Core CPI remained firm last week, reaching a record high of 5.7%. This indicates that the ECB is on track to hike rates again in early May, with ECB’s Muller stating that the ECB has “room to raise rates,”. However, with the recent collapse of Credit Suisse, confidence in Europe’s banking sector has been shaken. Despite this, EURUSD gained 3% in March, and bulls will aim to test resistance at 1.1035 this month.
The US economy has been hit hard by the recent collapse of SVB and Signature Bank. The Fed stepped in with the assistance of $155 billion, and major banks such as JP Morgan, Bank of America, and Citigroup have put $30 billion into the First Republic. The recent volatility in the sector could lead to ongoing weakness in the US dollar. Non-Farm Payrolls data will be released this Friday, which could add to market volatility. While Fed Vice-Chair Barr managed to calm equity markets last week with his testimony to Congress, investors will keep a close eye on whether the US dollar continues to weaken as the “De-dollarization” narrative creeps into main stream media.