Even though equity prices in the UK have fallen further than in the US and the euro-zone since the US bank SVB failed and the European bank Credit Swisse was taken over, the pound has strengthened from $1.20 to $1.23. That is probably partly because of the perception that the problems in the global banking system are a bigger risk for the US and the euro-zone than for the UK. Indeed, equity prices of the UK financial sector have fallen by less than elsewhere, which has meant the pound is acting a bit like a safe haven. It is also probably partly because interest rate expectations in the UK haven’t fallen as far. We are not expecting an escalation of the US banking issues or for them spread to the UK. But we do think that both the US and UK will enter recession this year, which implies the pound may yet weaken.
Become a client to read more
This is premium content that requires an active Capital Economics subscription to view.
Already have an account?
You may already have access to this premium content as part of a paid subscription.
Sign in to read the content in full or get details of how you can access it
Register for free
Sign up for a free account to gain:
- Unlock additional content
- Register for Capital Economics events
- Receive email updates and economist-curated newsletters
- Request a free trial of our services