Fed, BoE Crucial Rate Decisions Amid Market Turmoil

March 22, 2023 10:46

The US Federal Reserve (Fed) will announce its decision on interest rates later today. The CME’s FedWatch Tool indicates an 88% probability of a 25 basis points rate hike, despite the turmoil in the banking sector. Jerome Powell is expected to deliver his remarks right after the Fed’s governing board meeting. Investors and traders will scrutinise his remarks to understand if the central bank will be focusing on price or financial stability.

On Thursday, it will be the Bank of England’s (BoE) turn to decide on interest rates. Earlier today, the Office for National Statistics (ONS) announced that the UK’s CPI inflation came in at 10.4%, on a year-to-year basis, in February. The figure surpassed economists’ expectations and marked the first inflation rise in the last four months. The elevated inflation reading strengthened the British Pound as it adds pressure on the BoE to further tighten its monetary policy.

Fed interest rate decision

Economists at UOB suggest that the Federal Open Market Committee (FOMC) will likely hike its Funds Target Range by 25 basis points in each of its upcoming meetings in March and May. Their report noted that, despite the improving inflation trajectory, the latest FOMC minutes indicated that “we are not quite near the end of the current tightening cycle.”

Analysts at Societe Generale think that even a nod by Jerome Powell to tighter financial conditions and downside growth risks could accelerate US dollar profit taking. Commenting on potential rate hikes, they wrote that “a smaller 25 bps rate increase by the Fed and minor revision to the dot plot poses downside risk for the Dollar this week. A 50 bps increase would be a surprise but could backfire for the Dollar if the dot-plot shows no significant compared to December.”

Bank of England interest rate decision

The BoE’s Monetary Policy Committee (MPC) is expected to announce its interest rate decision on Thursday afternoon. Market analysts are split with some anticipating a 0.25% rate hike while others believe that the BoE’s board could refrain from hiking rates for the 11th consecutive time.

ING economists said that this week’s interest rate decision by the BoE is on a knife’s edge, adding that the MPC will be divided. The Dutch bank’s report says that “despite encouraging signs that inflationary pressures are easing, we think the Bank of England will probably opt for one final 25bp hike on Thursday if it can, though that's undoubtedly contingent on what happens in financial markets.”

UK Retail Sales in February 

On Friday, the ONS will release figures regarding UK’s retail sales in February. Market analysts suggest that retail sales fell by 5.1%, on an annualised basis, but increased by 0.3% on a month-to-month basis.

According to the British Retail Consortium (BRC)-KPMG Retail Sales Monitor, UK February retail sales were up 5.2% in February against an increase of 6.7% for the same month last year. BRC’s analysts said that “while the cost-of-living crisis has made customers increasingly price-sensitive, they are still ready to celebrate special occasions. The economic backdrop means retailers face volatile trading conditions. Many consumers will be concerned as they prepare for further energy price and tax rises in April.”

US Durable Goods February report

The Durable Goods Orders in February report, released by the US Census Bureau, is expected to shed light on the state of the US production activity. The majority of economists anticipate a 0.7% increase on a month-to-month basis as they expect the number of orders to rebound from the –4.5% figure recorded in January.

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This material does not contain and should not be construed as containing investment advice, investment recommendations, an offer of or solicitation for any transactions in financial instruments. Please note that such trading analysis is not a reliable indicator for any current or future performance, as circumstances may change over time. Before making any investment decisions, you should seek advice from independent financial advisors to ensure you understand the risks.

Miltos Skemperis
Miltos Skemperis Financial Content Writer

Miltos Skemperis’ background is in journalism and business management. He has worked as a reporter on various TV news channels and newspapers. Miltos has been working as a financial content writer for the last seven years.