Fed Hikes By 25-bps & Signals More (Likely) to Come

Despite split expectations ahead of the meeting, the Fed pressed ahead with a further 25-bps hike at the March FOMC. The hike was smaller than the 50-bps move the market was looking for ahead of the recent banking crisis with the Fed also noting that it discussed the option of holding rates unchanged in light of the recent market turmoil. Looking ahead, the Fed signalled that it would be monitoring liquidity conditions carefully and, while it still expected further hikes to be appropriate, would assess on a meeting-by-meeting basis. The meeting was interpreted with a dovish skew by markets and USD has been heavily sold on the subsequently despite the Fed raising its dot plot forecasts.

Key Factors for Today

- USD drops as Fed strikes cautious tone over banking crisis – hikes by 25-bps – pause discussed
- Equities recovering after volatility around FOMC – caught between banking concerns and weaker USD
- NZD leads FX on better risk tone – SNB & BOE both expected to hike further today
- Metals and crude rally on weaker USD

Coming Up

- CHF – SNB March Meeting
- GBP – BOE March Meeting
- JPY – National Core CPI

Equities Recovering Following FOMC Volatility

Equities saw mixed action yesterday with plenty of volatility around the FOMC. Despite
initial strength, most indices closed lower on the day as traders digested the details from
the meeting. A tone of caution from the Fed as well as the prospect of further hikes is
certainly painting some dark clouds on the horizon for equities. However, most indices are
seeing a little loft across the European open on Thursday against the backdrop of a weaker
Dollar. Focus now turns to the SNB and the BOE which are both expected to hike rates
further also.

NZD LEADS FX ON USD DECLINE

A better tone to risk appetite on Thursday is favouring the Kiwi over the European open with NZD leading the charge against the Dollar today. Risk currencies generally are performing better though, recent dovishness in the RBA minutes is seeing NZD attracting better demand than AUD so far.

SNB & BOE Up Next

Today, traders’ attention will turn to the SNB and BOE. Both banks are expected to hike again in line with recent strong inflation prints. The SNB is forecast to hike by a further 50-bps while the BOE is projected to make a smaller 25-bps increase. With the BOE, focus will be on how the bank signals future moves beyond this point in light of the unexpected strength in February CPI.

Metals & Oil Turning Higher Again

In the metals and commodities space, gold and silver prices were both seen higher on the back of the FOMC yesterday, benefiting from the fresh downside in USD. While USD continues to move lower, both metals have room to run higher. However, upside in equities might limit gains to some extent. Crude prices are in the green again today, putting in a fourth consecutive winning day, so far. The rally, fuelled by a weaker USD, comes despite the EIA yesterday reporting a further 1.1 million barrel inventories surplus last week.