March 22, 2023

“Today, the focus will be on the Fed’s monetary policy decision, which carries some event risk for the dollar. It’s expected that the market will see a 25bps rate hike, but given recent concerns about the banking system, it wouldn’t be surprising if the Fed decides to pause.”

Tim Hallinan – Trading Director

Main Headlines

The US Federal Reserve is due to announce its decision on whether to continue with its monetary tightening campaign or pause interest rate hikes due to the recent banking turmoil, which is the worst since the 2008 financial crisis. The announcement will be made at 2pm Eastern time following the Federal Open Market Committee’s two-day meeting and will be followed by a press conference by Jay Powell. Due to the recent government takeover of two failing banks, policymakers are considering whether to increase rates by a quarter point or not at all.

In the UK, inflation unexpectedly rose in February, which has increased pressure on the Bank of England to raise interest rates again at its upcoming meeting on Thursday. The annual rate of consumer price inflation rose to 10.4 per cent in February, up from 10.1 per cent in January and higher than the forecasted 9.9 per cent by the BoE and economists polled by Reuters. Prices also increased by 1.1 per cent compared to the previous month, nearly double the analysts’ forecast of 0.6 per cent.

GBP

Sterling is well bid against most major currencies this morning. The UK government and regulators are being criticized for not properly regulating the privatised water sector, with companies prioritising financial returns instead of investing in necessary infrastructure. Senior Conservative Eurosceptic MPs have rejected Rishi Sunak’s new Brexit deal for Northern Ireland, citing concerns over EU law remaining in force in the region. The government’s adviser on the low-carbon gas has recommended the blending of hydrogen into the UK gas network as long as it is proven to be safe.

EUR

Euro is stronger against the dollar and weaker against sterling this morning. Germany’s central bank boss, Joachim Nagel, has urged eurozone rate-setters to continue raising borrowing costs to tackle inflation, despite recent financial turmoil. UBS is set to terminate a deal with Michael Klein, which would have given him control of much of Credit Suisse’s investment bank. The European Commission is proposing rules to require companies in Europe to provide evidence to back up climate-friendly claims about their products to prevent misleading green labels for products from clothing to cosmetics.

USD

The dollar is weaker than most major currencies in the early morning trade. First Republic Bank shares rebounded after US Treasury Secretary Janet Yellen signalled that a government backstop for smaller banks was available if needed. Nearly half a million students in Los Angeles had no school due to a three-day strike by education workers backed by the teachers’ union. The US Commerce Department has released proposed rules to prevent $52 billion in semiconductor manufacturing and research funding from being used by China and other countries deemed of concern.

Markets

European stocks fluctuated in a narrow range and US equity futures edged lower as investors prepared for the Federal Reserve’s much-anticipated interest-rate decision later Wednesday. The pound strengthened after a surprise increase in UK inflation. The Stoxx Europe 600 Index was slightly lower, with rates-sensitive real estate stocks leading declines. Contracts for the S&P 500 and the tech-heavy Nasdaq 100 both retreated by at least 0.2%. A gauge of Asian equities advanced more than 1%.

Main Economic Data/Central Banks/Government (All Times CET)

8:00 a.m.: UK Feb. CPI, PPI
9:00 a.m.: South Africa Feb. CPI
9:30 a.m.: Iceland 7-Day Term Deposit Rate
9:30 a.m.: ECB’s Villeroy speaks
9:45 a.m.: ECB’s Lagarde Speaks
10:00 a.m.: ECB Jan. Current Account
10:30 a.m.: ECB’s Lane speaks
10:30 a.m.: UK Jan. House Price Index
12:00 p.m.: UK March CBI Trends Total Orders
12:30 p.m.: ECB’s Rehn speaks
12:30 p.m.: UK to sell bonds
1:00 p.m.: ECB’s Wunsch speaks
1:10 p.m.: Riksbank Governor Thedeen on BIS panel
2:45 p.m.: ECB’s Panetta speaks
5:00 p.m.: Russia Weekly CPI, Feb. PPI
6:00 p.m.: ECB’s Nagel speaks
7:00 p.m.: Fed policy decision

Corporate Events

Earnings include Petco, Steelcase

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