USD

Ultimately, the Fed delivered broadly in line with market expectations yesterday afternoon, raising US rates by 25bps to a target range of 4.75 – 5%. The latest dot plots and economic projections also saw some adjustments made by Fed officials, with many now forecasting a series of rate cuts next year and some smoothing at the margin for the terminal rate. Jay Powell highlighted during his press conference that it may or may not be necessary to raise rates again. However, the Fed removed the key line implying ‘ongoing increases’ from their statement. He also mentioned that the recent credit tightening might forgo the need for the Fed to hike rates. Furthermore, he did say that the Fed members did discuss a pause in the days leading up to this month’s meeting but ultimately decided against it. The dollar continues to struggle, with the dollar index (DXY) around 1.5% lower this week.

EUR

The ECB can almost do no wrong now. Markets do love a warrior, and the ECB’s Lagarde has been highly visible throughout the past week, doubling down on the ECB’s commitment to tackle surging inflation in the region. Markets have interpreted this as a steeper path for ECB rate hikes. While the ECB may ultimately stop hiking rates quickly after the Fed reaches its terminal rate, this perception is helping to drive Euro strength. EUR/USD is up around 1.75% this week, revising a high not witnessed since the end of January. In other news, despite the recent Credit Suisse crisis, the SNB raised Swiss rates by 0.5% to 1.5%. 

GBP

The BoE raised interest rates a further 25bps, raising UK rates to 4.25%. Given a slew of more robust economic data and further aided by that surprising jump in the latest inflation data*. The move by the BoE happened despite the nervous market backdrop. The pound has been fairly solid throughout the past week, with GBP/USD rising by 0.75% this week, partly aided by the weaker dollar. GBP/EUR is down around 1% on the week, however, highlighting the broad strength of the single currency.

*Please see yesterday’s pulse for more detail 

JPY

The latest regional inflation is released in Japan overnight. The latest estimates predict a decline in key headline prices from 4.3% to 4.1% yearly during February. If inflation delivers as expected, the BoJ may feel partly vindicated in maintaining their YCC policy, despite immense external pressures. USD/JPY continues to grind lower for the fourth week, with EUR/JPY partially reversing the recent declines, driven by the much stronger single currency (see EUR).

CAD

USD/CAD lacks directional bias just now, with the recently weaker Canadian data (inflation) giving the Loonie bulls little reason for motivation and the weakening greenback ensuring that intra-day volatility continues to decrease. The pair is around 0.4% lower but remains trapped in a well-trodden range. Tomorrow’s Canadian Retail Sales are unlikely to be the spur to change, more with that most likely coming from the greenback side of the pair. 

MXN

Having rallied 5.7% in the previous two weeks, USD/MXN is around 1.8% lower this week. An increase in broad risk appetite is helping emerging market currencies stage a worthy recovery. Aiding the recovery has been the latest growth data, with GDP increasing by 3.5% throughout February (YoY).

BRL

The decision by the BCB to keep Brazilian interest rates on hold probably disappointed markets in the end, with hopes of a cut in interest rates now being delayed until the second half of the year as the central bank battle rising inflation. Given the backdrop, USD/BRL had a particularly volatile session yesterday, with an overall range of 1.5%. The pair ended up more or less where it started by the close.