Key Events This Week: Fed, BoE set to hike interest rates as war continues

Another whipsaw week of price action should be expected with the ongoing conflict in Europe clashing with major central bank meetings from the US Federal Reserve and the Bank of England.

Here are the key scheduled economic data releases and events slated for this week:

Tuesday, March 15

• CNH: China Feb industrial production, property investment, retail sales, surveyed jobless rate
• EUR: Eurozone January industrial production, March ZEW survey expectations
• GBP: UK jobs report

Wednesday, March 16

• USD: Fed rate decision
• US crude: EIA weekly US crude inventories

Thursday, March 17

• EUR: Eurozone February CPI (final print); speeches by ECB officials
• GBP: BOE rate decision
• USD: US weekly jobless claims, Feb industrial production

Friday, March 18

• JPY: Bank of Japan policy decision
• RUB: Bank of Russia key rate decision
• USD: Fed speak – Richmond Fed President Thomas Barkin

 

Against a highly uncertain backdrop, both the Fed and the BOE are set to look beyond the current depressing outlook and raise interest rates by 25bp. The instability of markets is failing to rattle future rate hike forecasts too, even if growth in the eurozone especially will be crimped.

It’s all about rising inflation getting even stronger in the near future as commodity and energy prices stay elevated for a prolonger period.

With US inflation already close to 8% and soon to test 9%, the domestic economy is growing and creating jobs in significant number.  The newly updated Fed dot plots will show us how aggressive this tightening cycle will be, with markets currently pricing in over six rate hikes this year. But the FOMC may again highlight a need to reman “nimble” given the geopolitical upheaval.

The dollar should continue to find support amid a relatively hawkish Fed, energy independence and widening interest rate differentials. Rising US bond yields and a modest pro-risk mood have driven USD/JPY to five-year highs above 117. Safe haven currencies like the yen notably underperformed last week. This bullish dollar trend against low yielding currencies, despite slowing growth risks, may push the major up near to 118 after its breakout of an ascending triangle pattern.

 

Sterling hoping for some support from the Old Lady

The Bank of England is also set to raise rates for a third straight meeting, taking the Bank Rate back to its pre-pandemic level at 0.75%. There is a small chance of a 50bp move, but whether the “unreliable boyfriend” makes an appearance is open to debate.

Unchanged rates would be a major surprise given the threat of sky-high inflation.

But the cost of living crisis is sure to put a dent in economic activity while Ukraine war risks linger.

A cautious stance by the MPC would further drag on GBP for an eventual test of 1.30 and below, particularly as the Fed is expected to deliver a relatively hawkish message the day before. On the flip side, the Bank of England may rescue the beleaguered pound in the near term if policymakers show increasing concern about higher inflation over the risk of economic weakness.

 

Gold tries to consolidate around $2,000

Safe haven status and plunging “real” interest rates saw the precious metal get very close to the all-time high last week at $2,075. Stagflation concerns are also helping but the question remains whether the “stag” will fade at a faster pace than the “flation”. If so, expect gold bugs may suffer as a more persistent inflation shock pushes prices back to major support at $1916.

 

FED FOMC Federal Reserve Bank of England BoE rate hike inflation Ukraine crisis Russia-Ukraine war Volatility US Dollar USD USDJPY Japanese Yen safe haven Gold Bullion precious metal GBPUSD British Pound Sterling