USD

The fallout from the SVB collapse continues to reverberate around global markets, with the focus now turning toward second, third, and fourth-round effects. Bank stocks, in particular, took a hammering through yesterday and overnight in Asia. The yield on the US treasury declined by around 0.5% yesterday, representing the single most significant daily decline since 1987. Beyond that, several key Banks are now openly suggesting that we can forget about a 25bps or 50bps rate hike from the FOMC next week, as no hikes will be the way forward. Rate cuts could even be on the cards, with market-implied pricing instantly removing all of the previously projected US rate hikes in one day. We have never seen a move happen that fast before. Amongst currencies, safe-haven flows have dominated (see JPY), with the dollar also struggling across the board. The dollar index (DXY) is now down over 1.25% in less than a week. US #CPI drops by 0.4% to +6.0% YoY, inline with expectations. Month-over-month CPI also matched expectations, decreasing to +0.4% from the prior reading of 0.5%.

 

EUR

What will the ECB do this Thursday? Having waxed lyrical over the past month that they are set to raise Euro area rates by 50bps at this week’s meeting, given the sudden swing in market-implied pricing for rate hikes across the Central Bank universe (see USD), there remains much doubt as to what the ECB will now deliver. Given the fluidity of the situation, we really can forget about the recent forward guidance from the ECB at the moment. As for the single currency, well EUR/USD posted another 0.4% rally yesterday, taking us back to mid-February levels in the process. 

 

GBP

UK economic data continues to improve, highlighting the unexpected strength in the UK economy as we accelerate toward tomorrow’s key Budget. The latest employment report, released earlier today, saw ILO unemployment remaining low at 3.7%. With public-sector coffers also being boosted by higher-than-expected tax revenues and the government having to outlay far less than expected for their energy support scheme, the chancellor has plenty of wriggle room. The pound has continued to recover, with GBP/USD rallying by a smart 0.75% through yesterday. 

 

JPY

Who needs to abandon YCC to enforce a Bond rally? Given the huge rally in global Bonds, the BoJ will also be delighted (and relieved) to see the yield on the key 10-year JGB disintegrate to below 0.2% at one point yesterday. Gold has also understandably been in high demand. Amongst currencies, the yen (alongside the CHF) has been one of the clear beneficiaries as participants sought sanctuary through this crisis. At one point yesterday, USD/JPY declined by nearly 2% before recovering, a recovery which is continuing through today as a calmer market backdrop dominates the proceeding so far. 

 

CAD

The recent rally in USD/CAD has reversed suddenly since the end of last week, with the pair moving well below the recent high. Clearly, these moves have been dominated by events in the US, and broader greenback sentiment will continue to drive short-term directional bias. However, the recent decision by the BoC to pause Canadian rate hikes suddenly looks like a smart move given this week’s events. 

 

MXN

It has been a fairly ugly and spectacular turnaround for Emerging Market currencies, with USD/MXN rallying by a whopping 5% in less than a week. Investors moved away from supposed more risky assets and sought sanction in the likes of the Yen, Swissy, and Gold.

BRL

USD/BRL followed the pattern of the Peso, with the pair rallying around 0.7%, on the day and up over 3% from the recent low.