The British government’s pound and euro stabilized ahead of the British government’s budget announcement on Wednesday and the European Central Bank’s looming interest rate hike on Thursday.
The dollar also stabilized as fears of a banking crisis eased and investors lowered bets on a U.S. rate cut.
Sterling was down 0.11 percent at $1.2146 and stabilised at 88.24 pence against the euro. British Finance Minister Jeremy Hunt will deliver a budget speech to parliament at around 1230 GMT. Hunt is expected to announce how he will try to prop up the world’s sixth-largest economy.
The euro hit a monthly high of $1.0760 before returning to trading at $1.0730, pending the ECB meeting.
Markets are pricing in the possibility of a 90 basis point hike in euro zone rates at 50 percent, a bigger hike than U.S. Federal Reserve traders expect next week.
The dollar rose 0.16 percent to 134.45 yen, even as wage negotiations in Japan saw the biggest wage increases in a quarter-century, likely putting pressure on the country’s monetary policy.
Bank stocks rebounded and bonds and interest-rate futures have given up some of the huge gains they made after three U.S. banks failed in a matter of days.
These moves suggest that immediate fears of contagion in the U.S. banking system have dissipated following the collapse of Silicon Valley Bank (SVB) last week.
Interest rate futures now imply an 80% chance of a 25 basis point rate hike in the United States. A week ago, markets gave a similar probability of a 50 basis point hike, but earlier this week, fear of the crisis caused traders to give a 50% probability.