Fed Rate Hike Ahead. Is It Already Priced in or Should We Expect Surprises?
Central Banks Are Getting Ready for a Busy Week
by Bogdan Giulvezan
The safe-haven US Dollar made serious advances last week against its major counterparts: it took the Yen at a 5-year high, while GBP/USD printed a fresh yearly low at 1.3013. All this is ahead of the Fed’s March Meeting where we will most likely see a 25 bps rate hike, in line with analysts’ expectations.
While there was talk about a 50 bps rate hike, that option is mostly off the table now, at least according to the general consensus. However, surprises can happen, thus if the Fed will decide to hike to <0.75% (currently <0.25% and is expected to climb to <0.50%), this will cause a massive ruckus in the markets.
Key Events for the Week Ahead
First up is the U.S. Producer Price Index (PPI), scheduled for Tuesday at 12:30 pm GMT. The indicator tracks changes in the price charged by producers for the finished goods and services they sell and has inflationary implications because a higher price is usually passed on to the consumer.
Wednesday will be the busiest and most important day of the week, with two major events for the US Dollar. At 12:30 pm GMT we take a look at the Retail Sales and Core version of the same indicator, while later in the evening, at 6:00 pm GMT, the FOMC will announce the interest rate alongside the FOMC Economic Projections. Half an hour later, Fed Chair Powell will hold a press conference discussing the rate decision and possibly offering clues about the pace of future hikes.
Thursday at 12:00 pm GMT it’s the Bank of England’s turn to hike the interest rate. This would be the third hike in a row and would put the rate at 0.75% (it is currently 0.50%). The Monetary Policy Summary that accompanies the rate will probably offer more clues about future rate changes and about the reasons that influenced the rate decision.
Technical Outlook – GBP/USD
The bears have finally breached the technical and psychological support at 1.3200 and the pair is currently trading at 1.3020, in close vicinity of the key level at 1.3000. The greenback is fuelled by its safe-haven status while the Pound is weighed down by the fact that the United Kingdom is (or rather was) one of Russia’s main economic partners.
With that being said, we can expect the current downtrend to continue, but it must be taken into account that the RSI is already oversold on a Daily chart and that the pair traveled a long distance without a proper retracement.
Potential pullbacks may be capped by 1.3200, which has already turned into resistance but there is still a lot of bearish momentum, as evidenced by the price action and by the lines of the MACD. Also, keep in mind that a lot will depend on the decisions of the Fed and BoE regarding their respective interest rates.
