Daily Market Recap - What to expect from the FOMC Meeting

The March FOMC meeting will be the most important in a long time. Long-term rates have risen sharply since the last meeting. Investors have begun to place more importance on the possibility that the $1.9 billion U.S. bailout and other fiscal measures will significantly increase inflation risks and lead to earlier and faster rate hikes.

It is hard to imagine tomorrow that Fed Chairman J. Powell will change the accommodative tone adopted by the Fed in recent months, which he recently confirmed despite these market moves. Nor is he likely to outline a new timetable with a reduction in asset purchases and rate hikes.

But the revised economic projections for the first time since December will give an idea of a change in monetary policy in the coming months that will influence rates and the dollar. Of particular interest will be inflation and unemployment expectations.

The market is now anticipating nearly three rate hikes by the end of 2023, which represents a significant hawkish shift since the last FOMC meeting in late January. This view seems very aggressive compared to the latest statements from Fed members who seem to be comfortable with a resurgence of inflation even above 2%, seeing it as temporary. Fed officials do not seem to share investors' perception of high inflation risk.

Upward revisions to economic data could therefore drive rates and the dollar higher at least temporarily. In this case, the currencies that would suffer the most would be those most sensitive to interest rate differentials, i.e. the yen, the Swiss franc, and the euro.

(Chart Source: Tradingview 16.03.2021)

For now, forex markets have been extremely quiet with most major currency pairs trading flat during todays session. The EURUSD, GBPUSD, USDJPY have all recorded negligible moves as traders await the outcome of the FOMC meeting tomorrow.

Disclaimer: This material has been created for information purposes only. All views expressed in this document are my own and do not necessarily represent the opinions of any entity.