IFX Market Report: Thursday 17th March 2022

The Federal Reserve yesterday decided to raise interest rates for the first time since 2018 and “laid out an aggressive plan to push borrowing costs to restrictive levels next year in a pivot from battling the coronavirus pandemic to countering the economic risks posed by excessive inflation and the war in Ukraine”. While a quarter-percentage-point-increase was expected, latest Fed projections showed that “policymakers ready to shift their inflation fight into high gear”, with St. Louis Fed President James Bullard arguing this month for an even more aggressive approach. According to Reuters most policymakers now expect the federal funds rate rising to a range between 1.75% and 2% by the end of the year, the equivalent of a quarter-percentage-point rate increase at each of the Fed's six remaining 2022 policy meetings. Speaking after the meeting yesterday, Fed Chair Jerome Powell said the American “economy is strong enough to weather the rate hikes and maintain its current strong hiring and wage growth, and that the Fed needed to now focus on limiting the impact of price increases on American families”. Despite the tougher rate increases now projected, the Fed forecasts inflation to remain at 4.3% this year, dropping to 2.7% in 2023 and 2.3% in 2024.

The Dollar traded lower yesterday, allowing Sterling to advance and reclaim 1.31. GBPUSD started the day at 1.3039 and finished at 1.3105.

GBPEUR also made upside gains on Wednesday. The pair opened at 1.1899 and closed at 1.1903.

EURUSD also capitalized on a weaker USD. The pair opened at 1.0960 and closed at 1.1010.

Today’s focus will be the Bank of England interest rate decision at 12:00. The BoE looks set to raise rates again as it “tries to stop soaring inflation from becoming engrained in the British economy”.

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