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US Fed hikes rates, indicates more to come in 2022

The news shaping the markets today

Ukraine accused Russia’s military forces of bombing a theatre in Mariupol sheltering civilians. The ongoing conflict and uncertainty over a resolution sent, gold higher this morning.


The Hong Kong Monetary Authority increased the base rate by 25 basis points to 0.75% at its latest meeting. However, the HKD/USD forex pair remained under pressure.


Australia’s unemployment rate fell to 4.0% in February, from January’s level of 4.2%. This being the lowest jobless rate since August 2008 sent the AUD/USD pair higher in forex trading this morning.


New Zealand’s economy expanded by 3% during the three months to December, following a 3.6% contraction in the prior quarter, lending support to the NZD/USD forex pair.


The UAE Central Bank raised the base rate of its overnight deposit facility by 25bps. However, the AED/USD pair slipped slightly in forex trading this morning.

 

What’s happening: The US Federal Reserve announced its much-awaited interest rate decision on Wednesday.

What happened: Inflation continued to surge in the US, with annual consumer price inflation spiking to a fresh 40-year high last month.

In a bid to control surging prices, the US central bank hiked interest rates after several years and said it sees more to come by yearend. Policymakers also announced their plans for other stimulus measures.

Why it matters: The Fed had increased interest rates cautiously after the 2008 financial crisis but lowered them again with the onset of the covid-19 pandemic.

US consumer prices have accelerating sharply since the beginning of the pandemic. The CPI (consumer price index) accelerated to 7.9% in February, representing the highest reading since 1982.

During its meeting on Wednesday, the Federal Reserve increased the target fed funds rate by 0.25% to a new range of between 0.25% and 0.5%, which is its first hike since 2018. The central bank also indicated that there could be as many as six rate hikes this year, with five of the committee members projecting rates to exceed 3% by 2024.

All eleven members of the Fed voted unanimously to hike rates. One of the members, James Bullard, voted for a higher increase of 0.5%. The Fed also announced plans to wind down other stimulus measures that the bank had begun in an attempt to stabilise markets following the covid-19 crisis.

The country’s central bank reassured that job growth in the country has been strong, sending the unemployment rate lower. The decision from the Fed came after the country’s economy added 678,000 jobs in February, sharply higher than the market expectations of 440,000 jobs. The US unemployment rate declined to 3.8%, while wage growth rose to 5.1% last month.

The central bank also issued new economic forecasts. The unemployment rate is seen at 3.5% for 2022, unchanged from their December projection. However, bank officials said they expect GDP growth to slow to 2.8% this year and inflation to ease to about 4.3% by yearend.

What to watch: Traders will keep an eye on the US stock market, which is expected to pare some gains recorded before the minutes of the Fed’s meeting were published. The Dow Jones index gained more than 500 points on Wednesday. However, the Dow Jones futures declined by around 0.1% this morning.

Markets will also monitor developments around the ongoing conflict between Russia and Ukraine.

The markets today

Euro will be in focus today ahead of inflation data from the eurozone

 

Context: EUR/USD moved higher on Wednesday with traders monitoring the ongoing Russia-Ukraine conflict.

Details: Russia’s Foreign Minister Sergei Lavrov said he sees “some hope for compromise” amid peace talks with Ukraine, with a neutral status for Kyiv now on the table. Ukraine’s President Volodymyr Zelenskyy also indicated that the talks with Russia were now sounding “more realistic,” but it could still take time to arrive at an agreement.

With some parts of the Russia-Ukraine deal seeming close to being agreed, markets turned bullish about the war coming to an end.

The US dollar index, which tracks the greenback’s performance versus six major peers, settled lower at 98.62 on Wednesday, lending support to the euro. The US dollar is seen as a safe-haven option by traders and had spiked on Russia-Ukraine tensions.

The euro climbed above the important resistance level of $1.10, settling higher at $1.1035 on Wednesday. The GBP/USD forex pair also recorded gains on Wednesday, ahead of the Bank of England’s policy decision today, with markets expecting the central bank to announce a quarter-point increase in rates.

What to watch: Traders await inflation data from the Eurozone today. Markets expect the annual inflation rate in the common bloc to accelerate to a record high of 5.8% in February, from 5.1% in the previous month.

The ongoing war between Russia and Ukraine remains a major concern for traders. Markets will also monitor rising covid-19 cases in China, with total global cases surging past 464 million.

Other Markets: US indices closed higher on Wednesday, with the Dow Jones index, S&P 500 and Nasdaq 100 up by 1.55%, 2.24% and 3.70%, respectively.

Support & resistances for today

Technical Levels News Sentiment
USD/JPY – 118.74 and 118.88 Positive
GBP/USD – 1.3143 and 1.3165 Positive
WTI Crude Oil – 96.01 and 96.37 Positive
Dow Jones – 33898.48 and 34148.91 Negative
Nasdaq 100 – 13859.38 and 14007.48 Negative

 

Market snapshot

What else to watch today

European Union’s passenger car sales and inflation rate, Bank of Indonesia’s interest rate decision, South Africa’s FNB/BER consumer confidence index, Spain’s balance of trade, Turkey’s Foreign Exchange Reserves and Central Bank of Turkey’s interest rate decision, Brazil’s IBC-Br index of economic activity, Bank of England’s interest rate decision, as well as US building permits, housing starts, Philadelphia Fed Manufacturing index, initial jobless claims, continuing jobless claims, Philly Fed business conditions, industrial production, manufacturing production, capacity utilization and natural gas stocks change.

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