The US dollar strengthened on Tuesday. What about the pound sterling?

The US currency was stable today. The dollar index was flat at 103.36 against the basket of six major currencies. However, the dollar rose 0.1% against the euro, finally trading at $1.0729 per EUR.

The British pound also tumbled on Tuesday, along with the common currency. Investors eyed the current banking stress, believing that the US Federal Reserve and the Bank of England would not raise interest rates much. Both central banks have a meeting scheduled for this week. While raising rates is the best solution against skyrocketing inflation, countries now have bigger concerns to consider. That is especially true for the United States, as its two regional banks collapsed last week, causing a lot of turmoil in the markets.

Traders are still concerned about the fate of the banking sector. Due to the negative sentiment, shares of US lender First Republic plunged nearly 50% in the previous session. Market participants expected it to require a second bailout. Despite such a gloomy outlook, European banks managed to rally today, ending the session with gains for the second day in a row. Such a development alleviated some of the concerns of traders. UBS Group took over Credit Suisse, which contributed to some of these concerns.

However, the focus of investors is on the central bank meetings. According to polls, there is a 25% chance that the US central bank will maintain its current interest rates on Wednesday and a 75% chance that it will raise rates by 25 basis points.

What do the analysts say?

John Velis, the Americas FX and macro strategist at BNY Mellon, noted that asset markets have been especially volatile recently. That has somewhat confused traders trying to forecast the results of the March Federal Reserve meeting. As a result, they changed the price of some of those expectations, especially those related to future rates. Velis added that markets were expected to peak at 5.5% just a few weeks ago, but now traders are pricing in a 4.8% rise.

Not surprisingly, the dollar has also declined. However, the risk-averse mood in financial markets helped. As a result, the dollar is not facing a sell-off. In addition, the dollar rallied 0.66% against the second safe-haven currency, the Japanese yen. It changed hands for 132.18 yen. On Friday, the currency suffered its biggest daily drop against the Japanese currency in more than two months.

Meanwhile, the British pound on Tuesday fell 0.35% to $1.2234. Investors expect UK data on Wednesday to show that inflation is slowing. However, the global financial market remains unstable. Therefore, currency markets are currently pricing in a 50/50 chance that the BoE will maintain its monetary policy on Thursday. However, you are just as likely to offer a 25 basis point increase.

According to new data, the UK experienced a budget deficit of £16.68bn last month. That is a much higher figure than analysts had expected.

The Norwegian krone recovered. Why that?

On Tuesday, the Norwegian krone jumped 0.35%. She changed hands at 10.6120 to the dollar, at last. The currency plunged last week, hitting its lowest level since early October. However, investors believe that Norway’s central bank will raise its benchmark interest rate by 25bp to 3% at its next meeting this week. The bank aims to hinder rising inflation and boost the declining currency. With central bank interest rate hikes often triggering a rise in its currency, the krona could add some gains in the coming days.

Meanwhile, the Australian bank’s meeting minutes showed it decided to consider pausing rate hikes at its April meeting. Consequently, the Australian dollar fell 0.55% to $0.6681. Alvin Tan, head of Asia currency strategy at RBC Capital Markets, said investors remain nervous. Still, policymakers were quick to respond to the banking crisis, raising those fears a bit.

In Asia, the Sri Lankan rupee soared 5% against the dollar. The country got approval from the International Monetary Fund to finance it. Most emerging Asian currencies also gained. Also, the stock rose higher today. Malaysia’s ringgit soared while most of its peers added only small amounts. The Indonesian rupiah held firm, but the Philippine peso fell lower. The Singapore dollar also fell 0.2%. The Chinese yuan was also flat after falling early in the session.