There were signs of a looming financial crisis in March. Fortunately, this was a false alert. Banking models, especially those of banks with profitability problems, have been unsettled by the rise in interest rates triggered by efforts to tackle persistent inflation. This is a US issue, but it also caused bank stress to spike on the other side of the Atlantic while across the Pacific, the Japanese yen temporarily benefited from this. But strains soon eased thanks to the swift action of central banks, which supplied liquidity to banks in need and spurred merger and acquisition processes. April, marked by few central bank meetings, looks set to be calmer.
High: 1.0926 Low: 1.0524 Variation: +2.13%
The euro was highly volatile in March amid mounting bank stress. But the EUR/USD pair finally returned to the zone around 1.09. From a technical analysis perspective, the pair needs to cross the 1.0970 threshold again to hope for a continued appreciation. We remain confident that the euro can go above 1.10 in the months ahead. In the short term, however, there are no upward catalysts (the ECB’s continued monetary tightening process is already priced in, for example). As such, it is possible that the pair will fluctuate in a broad range between 1.05 and 1.10 in the short term, as was the case over the past four weeks.
High: 0.8930 Low: 0.8725 Variation: -0.87%
Sterling’s resilience remains impressive. This is partly due to the less bad than expected situation on the macroeconomic front. A long and severe recession, which was also predicted by the Bank of England, is no longer on the cards. Thanks to the sharp easing of the energy crisis, the UK may even narrowly avoid a recession. That said, there are areas of concern: inflation remains high and soaring food prices (up around 20% year-on-year) risk creating social strains. Sterling is also aided by technical factors. We have noted in recent weeks that hedge funds have massively sold euros to buy sterling (linked to the rise in bank stress that hit Continental Europe but spared the UK).
High: 1.2394 Low: 1.1821 Variation: +2.99%
A few weeks ago, there was a debate among analysts about whether the US dollar would emerge stronger from the period of bank stress. As shown by the performance of the GBP/USD pair in March, the answer is no. On a monthly basis, the pair staged an excellent performance of 2.99%. This rise is explained more by the US dollar’s depreciation than by renewed confidence in the UK currency, in our view. The market is waging that bank stress will cause the supply of credit to shrink (denting growth) and prompt the US central bank to end its monetary tightening cycle earlier than planned. We do not share this opinion. However, this is the position of a majority of analysts, explaining the appreciation of the GBP/USD pair (flagging growth = end of interest-rate hikes = a more attractive US dollar).
High: 7.5111 Low: 7.3925 Variation: +1.18%
The EUR/CNH is close to its level at the end of February. In early March, the euro logically plunged because of bank stress, but the pair subsequently stabilised and still has an upward bias. We do not make much use of technical analysis to forecast the fluctuations of this pair, as interventions by Chinese authorities (through the central bank or, more often, state-controlled banks) predominantly influence its level. China is obviously seeking to weaken its currency to attain its growth target of at least 5% this year. All experts agree that this is an ambitious objective. The CNH’s depreciation will probably gather pace in the months ahead.
High: 0.9966 Low: 0.9713 Variation: -0.68%
The EUR/CHF has tread water, so to speak. It ended the month of March close to its level four weeks earlier. We think Swiss authorities are fairly pleased in the short term with the current exchange rate. The CHF is high enough to tackle inflation but not too high to hamper the strategic exports sector. We expect the EUR/CHF to hover around par in the short and medium term, with possible incursions into the 0.96-0.97 zone. Note that recent events surrounding Credit Suisse have had no lasting effect on the Swiss franc’s exchange rate (this also underlines the currency’s strong disconnection from the real economy).
High: 1.4913 Low: 1.4381 Variation: +1.66%
The Canadian dollar is an interesting currency at present. Two factors are driving down the currency: (1) the Bank of Canada is the central bank of a G7 country that has clearly announced a monetary policy pause; and (2) the oil price outlook is negative in the short term amid resurgent concerns of a recession caused by bank stress. We have had a buy position on the EUR/CAD for several months now. At this juncture, fundamentals and technical analysis support our position. From a technical analysis perspective, the next objective for the pair is 1.50.
High: 1,6314 Low: 1.5692 Variation: +2.78%
The European single currency staged a strong appreciation in March against the Australian dollar (+2.78%). The explanation for this is simple: in periods of risk aversion, the euro is perceived by currency market operators as a safer haven than the Australian dollar (even when the risk factor mainly relates to Europe). After such an appreciation, we foresee a pull-back in the short term, chiefly reflecting profit-taking. We continue to have a buy position on the EUR/AUD pair, as monetary policy momentum is more favourable to the euro than the Australian dollar, for example.
High: 145.67 Low: 138.83 Variation: -0.02%
When banking stress was strongest, operators rapidly and massively took buy positions in the Japanese yen. But once calm had returned (in large part, since there are still areas of strain), the EUR/JPY returned to its underlying upward trend. The fact that the Bank of Japan is stubbornly sticking to its ultra-accommodative monetary policy (before inflation becomes a real problem in Japan) is a lasting downside factor for the Japanese yen. In these conditions, we do not see how a buy position in the EUR/JPY can be avoided. Our next target is 146.50 (we are still far below the six-month high of 148.41).
High: 402.44 Low: 373.40 Variation: +2.03%
The EUR/HUF pair was highly volatile in March. When bank stress reared its head, the euro soared against the HUF (in a context of risk aversion, the euro is viewed as a safer haven than the HUF). This explains the monthly high of 402.44. But this was short-lived. Once bank stress diminished, the EUR/HUF resumed its underlying downward trend. We remain convinced that the HUF will stage a solid performance this year against the euro, even if tensions between Brussels and Budapest over the release of European funds remain a key point of uncertainty (market operators have learned in the end to live with this).
High: 381.40 Low: 347.02 Variation: -0.02.65%
The USD/HUF pair ended the month unchanged after a sharp resurgence of volatility in March amid strains on financial stocks (localised bank run in the US, rising risk premiums for some banks to cover a liquidation, turmoil at Credit Suisse that was bought out cheaply by UBS, etc.). We think this underperformance by the US dollar will likely persist in the short term (as was the case in the first quarter), something of an advantage for the HUF. The pair is currently hovering around 350. We would not be surprised to see incursions into the 330s shortly.
| DATE | CURRENCY | EVENT |
| 07/04 | USD | March employment figures |
| 12/04 | CAD | Central bank monetary policy meeting |
| 18/04 | EUR | ZEW economic index in Germany for April |
| 25/04 | HUF | Central bank monetary policy meeting |