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Risk event for the Euro with ECB event today

Sterling pushed into overbought territory after the UK Budget & Credit Suisse madness..


As expected, yesterday was positive for most £ sellers after the announcement of the UK Budget. Jeremy Hunt delivered a welcomed fiscal package (again for most), as-well-as good news on inflation and recession fears. I'm sure the majority of you reading this would have seen/heard what the changes were yesterday yourselves, so i'll steer clear from this particular news in this report.

Yesterday saw a run on the Euro across the board, due to a plunge in European stock markets following news from the global investment juggernaut, Credit Suisse. The single currency lost nearly 1.5% against the Pound and close to a 2% drop versus the USD. European banks ended yesterday's session down 7% with Credit Suisse' stock falling a record 24% and hitting an all-time low. The Euro was faced with its worse decline since March 2020..

The huge sell-off's were due to rapid fears that rising global interest rates are harming the Euro-Zone's financial sector. This obviously comes off the back of the recent SVB collapse with investors being concerned over another 2008-style financial crises. The Euro has managed to claw some ground back today with many still expecting to see a 50bp interest rate hike from the ECB shortly.

GBP v USD is down slightly on the week purely down to global sentiment turning negative from the uncertain news. The £-€ rate has lost 1% after being pushed into overbought territory yesterday, but mainly due to Credit Suisse finding a £44 Billion lifeline from Swiss National Bank, which has seen its shares bounce-back. The loan, is the first time a major global bank has been given such aid since the 2008 financial crash.  

Onto today then and the ECB will be scrutinized closely as they deliver their interest rate decision and following minutes. Anything less than 25bp will cause the Euro some problems, simply because its current value includes an immediate 50bp hike and another likely on the next round. The banking sector is under serious pressure at the moment and if the ECB reads what is happening incorrectly and go onto raise 50bp now, it would spell disaster down the line.