Very strong expectations that the Federal Reserve will sanction a 0.25% rate increase.

There are very strong expectations that the Federal Reserve will sanction a 0.25% rate increase at Wednesday’s policy meeting. The statement will be important with a particular focus on inflation and markets will take strong notice of the latest interest rate forecasts from individual committee members with the potential for further upgrades to projections.

Markets overall expect a hawkish stance from the central bank with Chair Powell’s commentary inevitably triggering sharp dollar moves as he faces a tough balancing act.

There have been no major military developments in Ukraine over the past 24 hours with Russian forces edging closer to Kyiv, but not launching an all-out attack.

Humanitarian conditions remain desperate in Mariupol with the siege continuing.

The US and Europe have imposed additional sanctions on Ukraine.

The main focus has been on the possibility of peace talks making progress with Ukraine President Zelensky stating that talks with Russia are beginning to sound more realistic. There have also been indications that Ukraine is prepared to rule out NATO membership. The overall situation will, however, remain precarious, especially if Russian attacks on Kyiv intensify.

Volatility in equity markets has remained very high, but a strong rebound on Wall Street has improved the global tone with markets also rallying strongly in Asia.

Immediate concerns over the China coronavirus situation have eased slightly which helped trigger a strong recovery in regional equity markets.

Gold prices again declined sharply on Tuesday. There has been an element of optimism over peace talks in Ukraine which has curbed potential demand for defensive assets with gold the main casualty.

The Yen and Swiss franc have also remained on the defensive in global markets.

The US New York Empire manufacturing index maintained recent volatility with a sharp decline to a 22-month low of -11.8 for March from 3.1 previously and well below consensus forecasts of 7.0. Companies, however, were more optimistic over the outlook.

The new orders and shipments components also dipped into negative territory. The inflation data was mixed with a small decline in the rate of cost increases offset by a faster pace of price increases to a record high while companies expect inflation pressures will intensify.

The firm outlook components limited the potential market impact.

ECB President Lagarde stated that inflation is still expected to decline progressively in all scenarios and settle around the 2% target in 2024. She did, however, add that uncertainty surrounding the outlook has increased significantly.

The Euro was hampered by concerns that sanctions on Russia would hurt the banking sector. EUR/USD dipped below 1.0950 before a recovery to 1.0970 on Wednesday. The dollar gained an element of support into Wednesday’s Federal Reserve policy decision.

USD/JPY found support below 118.00 as US yields moved higher again and settled around 118.20. USD/CHF posted 11-month highs above 0.9400 as franc demand declined.

Sterling stabilised as risk appetite improved but struggled to gain sustained support amid domestic economic reservations. GBP/USD found support near 1.3000 and settled around 1.3055. GBP/EUR consolidated around 1.1900.

Commodity prices rallied from intra-day lows as risk conditions improved. The Australian dollar also recovered as immediate Chinese fears eased slightly with AUD/USD at 0.7225. The Canadian dollar was resilient despite weaker energy prices with USD/CAD around 1.2740.

Economic Calendar

09:00Italy - CPI (M/M)(FEB)0.90%
09:00Italy - CPI (Y/Y)(FEB)5.70%
12:30Canada - Core CPI (Y/Y)(FEB)4.30%
12:30Bank of Canada Core CPI (M/M)(FEB)0.80%
13:30USD Core Retail Sales (M/M)(FEB)3.30%
13:30USD Export Price Index (M/M)(FEB)1.32.9
13:30USD Import Price Index (M/M)(FEB)1.30%2.00%
13:30USD Advance Retail Sales (M/M)(FEB)2.00%3.80%
13:30CAD CPI (M/M)(FEB)0.90%
13:30CAD CPI (Y/Y)(FEB)4.80%5.10%
13:30CAD Wholesale Sales (M/M)(JAN)0.60%
14:00USD Business Inventories(FEB)2.10%
18:00USD FOMC Projections of Economy
18:00USD FOMC Statement
18:00FOMC Interest Rate Decision
18:30FOMC Press Conference

*All rates shown are indicative of interbank rates and should only be used for indication purposes only. It is important to note that foreign exchange rates fluctuate and that rates may vary depending on the amount and the base currency that is purchased or sold. Rates are correct as of 8:00am UK time. CentralFX are not responsible for the rates shown.