Currency outlook: Euro rocked by European banking crisis, Fluctuating Fed bets infuse volatility in US dollar

likely to keep a close eye on the European banking sector. Assuming no more hiccups emerge, the euro may be able to resume its positive trajectory.

Pound

GBP/EUR: Unchanged at €1.12

GBP/USD: Up from $1.20 to $1.23

The pound was initially buoyed as we entered March. Sterling sentiment strengthened as stronger-thanexpected UK PMIs boosted Bank of England (BoE) rate hike expectations.

This upside was reinforced by the announcement of a UK-EU deal to resolve the dispute over the controversial Northern Ireland protocol.

However, these gains were also immediately reversed following comments from BoE Governor Andrew Bailey, in which he suggested UK interest rates may have already peaked. Fears of potential policy divergence between the BoE and Federal Reserve then plunged the GBP/USD exchange to a threemonth low. Before a surprisingly

IN strong rebound in UK GDP at the start of 2023 helped Sterling to rebound. After fluctuating amid the banking sector jitters, the pound then firmed following the BoE’s March policy meeting after the bank proved more hawkish than expected.

Looking ahead, if UK inflation indicators remain elevated it may boost expectations for additional BoE rate hikes and help to underpin the pound in the coming month.

US Dollar USD/GBP: Down from $0.82 to

$0.81

USD/EUR: Down from €0.93 to €0.91

The past month has been a rollercoaster ride for the US dollar. This started with a softening of the ‘greenback’ amid a bullish market mood in early March.

USD exchange rates then raced to multi-month highs after Fed Chair Jerome Powell stunned markets with a particularly hawkish testimony before Congress. Catapulting USD exchange rates higher as investors be-