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  • richard evans

Fed raises rates, attention turns to BoE

Good morning

US data releases will be one hour earlier at 12.30 or 14.00 london time due to the US clock changes that took place at the weekend.

In addition, FX option expiries will be 14.00 london time, not the usual 15.00 london time.

This will be until Sunday 27th when we change our clocks in the UK

Stocks had a solid move higher yesterday helped once again by some positive comments over a possible Ukraine peace deal. Whether that optimism is misplaced is another matter, I have already expressed my concerns and I still struggle to see how Putin can withdraw from his invasion without losing face. Is he concerned about loss of life among his soldiers or the Ukraine population? I don’t think so and I continue to think the more he is backed into a corner, the more erratic his actions are likely to be. The French Foreign Minister seems to agree, saying Russia are merely pretending to negotiate with Ukraine.

The fears of a Russian default are raised as a $117m coupon payment on Russian bonds has not been received. I believe there is now a 30 day grace period before it is called a default. Watch this space.

US indices ended up around 2-3% higher, Asian markets followed a similar move although Hong Kongs Hang Seng index was up nearly 7%, boosted by talk of a possible rate cut from China.

Fed raised rates 25bps as widely expected. The decision to raise rates was unanimous, Bullard did vote for a 50bps raise giving a slightly hawkish tilt to the move, and Powell confirmed that ongoing rate increases will be appropriate, the dot plot now shows seven rate rises through 2022 making every meeting ‘live’, compared to just three when released in December. Powell also mentioned that Fed could push rates beyond what they regard as neutral should the need arise and that they are also likely to reduce the balance sheet at a fast rate than they have previously.

USD initially strengthened but has since been on the back foot, GBPUSD traded down to 1.0345 post-FOMC but quickly rallied 100 points or so, that move has continued this morning and the pair now trades at 1.3190. EURUSD saw similar moves, trading down to 1.0950 before pushing up to mid 1.10s. EURGBP at 0.8380 (GBPEUR 1.1935), GBP a little bit stronger than at this time yesterday.

We turn to the BoE today who look set to raise rates by a further 25bps today. That move alone shouldn’t be enough to push GBP much higher, but the comments attached to it will be watched with interest to see BoEs feelings on inflation and potential for further rises. We saw USD weaken post-FOMC, I think we are unlikely to see the same from GBP but if we do dip lower I would not be surprised to see some GBP buying creeping in.

We have BoJ rate meeting in the early hours of tomorrow morning, no policy changes expected there. JPY is actually weak at the moment, USDJPY traded above 119.00 for the first time in six years overnight. I have been reading that JPY may be losing its status as a safe haven currency, ie we may not see such substantial gains in periods of reduced risk sentiment. It’s a little early to tell, for now its weakness comes as stocks push higher which is pretty normal, although BoJ are one central bank who still seem a long way from tightening monetary policy.

AUD has made some gains after better employment data overnight, full time employment gains outstripping losses in the part time work force. AUDUSD now 0.7330, AUDNZD 1.0705, bnoth up 30 pips or so from pre-announcement levels.

Finally, a quick mention for Nazanin Zaghari-Ratcliffe and Anoosheh Ashorri who have been released from Iranian jails and return to the UK. They both deny claims against them of spying and trying to bring down the governemnt, whether they were guilty or not we’ll probably never know but I’m suer wre do have people on the ground over there doing things that we’ll never know about. The question now is whether their release is a good sign that the nuclear talks are progressing well, or whether UK have paid £400m that we seem to have owed Iran after they paid up front for some tanks back in the 1970s that we never delivered. According to Liz Truss, our Foreign Secretary, we have paid the money.

- 10.00 EU HICP

- 12.300 BoE rate announcment

- 12.30 US building permits, housing starts, philly fed survey, initial jobless claims

- 12.45 ECBs Schnabel speaks

- 13.15 US industrial production

- 23.30 Japan CPI

- 03.00 BoJ rate announcement

- 06.00 BoJ press conference

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