Once again, the US Dollar tumbles, even as bank deposits gain sturdier ground. Treasury yields may ascend, but their aid to the USD remains unseen.
As we ponder, will the banking crisis take precedence over inflation, and will the DXY index plummet further?
Coming up, Britain’s CPI report release.
Fed Rate Hike Speculation
The US Dollar struggles to stay afloat on Wednesday, hitting its lowest point since mid-February near 103, even as Treasury yields rise ahead of the Federal Reserve’s rate decision.
Speculations tilt towards a 25 basis point hike in anticipation of the Federal Open Market Committee (FOMC) meeting, although the likeliness of this move is currently pegged around 75%.
The Fed faces a challenging balance between tackling troublesome inflation and navigating an emerging banking crisis.
Amidst a cloud of uncertainty, economists anticipate a challenging forecast. Meanwhile, investors eagerly await the Fed’s reassurance that regional bank hurdles will be skillfully navigated.
Effects of Banking Crisis
Analysts predict the Fed could raise its target rate to 4.75% to 5% this Wednesday. However, there’s a chance the central bank may hit the brakes due to banking system worries. Futures markets are betting on an 80% chance of this rate hike,
As the sun set, whispers of an unsettling improvement in risk sentiment emerged, following the shocking collapse of SVB Financial. Fear clung to the shadows, waiting for its moment to strike.
However, in the darkest hour, Treasury Secretary Janet Yellen emerged like a beacon of hope, assuring anxious depositors at US banks that they had not been abandoned.
A safety net of insurance would be provided should any other small institutions find themselves besieged by runs-on deposits.
Yellen’s words were a balm to the troubled waters, but some skeptical souls still swam in the depths, interpreting her comments as a harbinger of more issues lurking beneath the surface at small and regional banks.
Only time will tell if these naysayers prove to be prophets or mere peddlers of pessimism.
Surprisingly, equity markets, daring currencies, and Treasury yields danced their way to a lively New York finale. Adding a twist to the tale, the US Dollar struggled to keep pace with rising yields.
As the curtains closed, volatility in bond and equity markets gracefully bowed out, as revealed by the MOVE and VIX indices.
Investors Expectations
Eager investors are on a quest for confidence, seeking a beacon of hope from Fed Chairman, Jerome Powell.
The expectation?
A guarantee that the central bank can indeed be the knight in shining armor, conquering the chaos in the banking realm.
Gripping Effects Of Tightened Financial Reins
A potential 1.5% boost in the Fed’s rates due to tight financial conditions might prompt the central bank to slash rates later this year, depending on economic factors.
Interestingly, the futures market is expecting a bolder rate reduction of a full percentage point, with four quarter-point cuts in store for the year.
When the Fed takes a breather on their hike, the market might just play it cool. But if they hit the brakes, the market’s nerves could shake, fearing the Fed’s throwing in the towel on their inflation battle.
Whatever path we take, buckle up for a bumpy journey!
DXY INDEX TECHNICAL ANALYSIS
In the wake of turmoil in SVB Financial, investors have seen tumultuous movement from the DXY index.
Most recently, it has broken above a short-term descending trend line but is still contained within an overall downward channel that could prove difficult to escape without support at 102.64 and 102.59 or resistance near triple tops around 105.63 –105 88, 10770 and 108 00 as well as breakpoints hitting 109 37/54
Coming Up ( Britain’s CPI Report)
The UK labor market is as tight as it gets, causing experts to watch with anticipation: what will the specifics of this month’s CPI report reveal?
From declining goods inflation and rising services costs to ECB policymaker speeches tonight alongside Fed Chair Powell’s address – these are questions that will have a big impact on Thursday’s BoE decision.
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