What’s been happening?

The recent malaise in the banking sector was initially triggered by the collapse of Silicon Valley Bank (SVB). The bank’s failure weighted on the US dollar in the past couple of weeks as it prompted USD investors to rein in their Federal Reserve interest rate expectations. 

The euro then came under considerable pressure as a subsequent plunge in shares in Credit Suisse triggered a wider European bank selloff. This also resulted in the European Central Bank (ECB) adopting a more cautious tone following its latest interest rate hike. 

Meanwhile, the weakness of its rivals has helped to prop up the pound over the past fortnight. However Sterling’s gains have been tempered by domestic headwinds, including speculation the end of the Bank of England’s (BoE) rate hike cycle is imminent.

What do you need to look out for?

Amid ongoing uncertainty regarding the banking sector, the currency market may remain highly volatile in the coming weeks.  

This may see the resulting market jitters disproportionately benefit the safe-haven US dollar and pile more pressure on the euro.

On top of this we have the latest interest rate decisions from the Fed and BoE. If either central bank opts to leave interest rates on hold, their respective currency could plummet.