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Markets brace for Fed rate hike

business-articlesMarkets brace for Fed rate hike
  • UK wage figures in focus
  • Fed poised to hike rates
  • RBNZ meeting may drag on NZD
UK wage squeeze coming to an end?

The UK is set to publish its latest jobs report later this morning and current forecasts suggest that they could provide a considerable boost to the pound.

This is largely on the back of expectations that wage growth will have risen to 2.6% at the start of the year, leaving average earnings just shy of inflation, which was shown on Tuesday to have fallen to 2.7% in February.

This suggests that UK consumers may finally receive some financial respite in the coming months, which investors hope will boost UK economic growth by reviving consumer spending.

Meanwhile the accompanying employment figures are expected to show the UK jobless rate held at 4.4% in January, with a robust rise of 84,000 in employment also potentially supporting GBP.

All eyes on the Fed in anticipation of rate hike

The Federal Reserve will conclude its latest policy meeting later this afternoon, and markets are bracing for what is widely expected to be the first US rate hike of the year. 

CME group’s FedWatch tool currency puts the odds of a March rate hike at around 95%, suggesting that a 0.25% rise in interest rates is all but certain.

However because of this certainty the hike itself is not expected to have too much of an impact on the US dollar, with the majority of investors having already priced in the move.

Instead it will be the Fed’s forward guidance that is most likely to be the driver of movement in USD today.

This will mostly revolve around whether the Fed will implement up to four hikes this year, with many analysts suggested that subdued inflation will cause policy makers to strike a more cautious tone in their outlook for the future.

NZD may slide following RBNZ rate decision

The Fed is not the only central bank discussing monetary policy today as NZD investors await the Reserve Bank of New Zealand’s (RBNZ) latest rate decision later this evening.

However unlike the Fed’s rate hike, the RBNZ’s policy statement looks to be considerably less eventful, with economists expecting the bank will leave its neutral bias largely unchanged as it maintains interest rates at a record low of 1.75%.

The New Zealand dollar may still tumble in the wake of the meeting, especially if the bank issues any warning about the possibility of rising trade tensions negatively impacting growth.

Upcoming Data

Wednesday, 21 March, 2018

09:30                     GBP Employment Figures
18:00                     USD Fed Interest Rate Decision  
20:00                     NZD RBNZ Rate Decision
Philip McHugh

Philip McHugh

Joining the corporate trading desk in 2007, Phil now over sees all of Currencies Direct’s corporate dealing activity. Having gained experience working with hundreds of businesses to optimise international payments processes and execute comprehensive risk management strategies, Phil currently works with a portfolio of corporate clients whilst managing Currencies Direct’s overall market exposure

Phil has FCA approval and has completed the Certificate in International Treasury Management (CertiTM)

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