Interest rates

Fed and BoE set to hike interest rates as war continues

Here is the key planned economic data releases and events scheduled for this week:

tuesday march 15

CNH: industrial production in February in China, real estate investment, retail sales, unemployment rate studied
EUR: Euro zone industrial production in January, ZEW survey forecasts for March
GBP: UK employment report

Wednesday March 16

USD: Fed rate decision
US Crude: EIA US Crude Weekly Inventories

Thursday March 17

EUR: Eurozone February CPI (final print); speeches by ECB officials
GBP: BOE rate decision
USD: weekly jobless claims in the United States, February industrial production

Friday 18th March

JPY: Bank of Japan policy decision
RUB: Decision on the key rate of the Bank of Russia
USD: The Fed speaks – Thomas Barkin, President of the Richmond Fed

In a very uncertain environment, the Fed and the BOE are ready to look beyond the current depressing outlook and raise interest rates by 25 basis points. Market volatility is also failing to shake future rate hike expectations, although growth in the Eurozone in particular will be dampened.

This is a rise in inflation that will become even stronger in the near future as commodity and energy prices remain high for an extended period.

With US inflation already close to 8% and soon to be 9%, the national economy is growing and creating a significant number of jobs. The recently updated Fed dot charts will show us just how aggressive this tightening cycle will be, with markets currently expecting more than six rate hikes this year. But the FOMC could again stress a need for an “agile” reman given the geopolitical upheavals.

The dollar should continue to find support amid a relatively hawkish Fed, energy independence and widening interest rate differentials. Rising US bond yields and a modest pro-risk sentiment pushed USD/JPY to five-year highs above 117. Safe-haven currencies like the yen notably underperformed last week. This uptrend for the Dollar against low-yielding currencies, despite downside risks to growth, could push the major higher to near 118 after its breakout in the shape of an ascending triangle.

USD/JPY daily chart

Sterling hopes for support from the Old Lady

The Bank of England is also expected to raise rates for a third consecutive meeting, bringing the Bank Rate back to its pre-pandemic level of 0.75%. There’s a slim chance of a 50 basis point move, but whether the “unreliable boyfriend” makes an appearance is up for debate.

Unchanged rates would be a major surprise given the threat of skyrocketing inflation.

But the cost of living crisis is bound to dampen economic activity as the risk of war in Ukraine persists.

A cautious stance by the MPC would further lengthen GBP for a possible test of 1.30 and below, especially as the Fed is expected to deliver a relatively hawkish message the day before. On the other hand, the Bank of England could rescue the beleaguered pound in the near term if policymakers grow increasingly concerned about rising inflation amid the risk of economic weakness.

GBP/USD daily chart

Gold tries to consolidate around $2,000

The safe haven status and the fall in “real” interest rates have precious metal moving closer to last week’s all-time high at $2,075. Stagflation fears also help, but the question remains whether the “deer” will fade at a faster rate than the “flation”. If so, expect gold bugs to suffer as a more persistent inflationary shock pushes prices back towards major support at $1916.

Gold daily chart

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