Key Takeaways:

The US Fed will decide on monetary policy and the next interest rate level this Wednesday.

Europe is suffering similar banking stresses as the US and recently raised its benchmark rate by 50 basis points.

In addition to monetary policy, the US will release S&P Global PMI estimates and February’s Durable Goods Orders.
Week Ahead: Fed Rate Decision, S&P Global PMI, Durable Goods Order

WISCONSIN (CoinChapter.com) — This Wednesday, despite being precarious, the US Federal Reserve will decide on monetary policy. The European Central Bank (ECB), also in a difficult economic position, carried out an anticipated 50 bps increase last week.

The EUR/USD currency pair consolidated for the fourth week while awaiting new banking-related information. Last week’s financial markets experienced some turbulence due to worries over the state of the banking industry.

As a result, the EUR/USD pair closed above the 1.0600 level after fluctuating between 1.0515 and 1.0759.

Potential Banking Catastrophe Averted

Market participants sought to maintain their upbeat outlook to begin last week after US President Joseph Biden intervened to save Silicon Valley Bank (SVB) and Signature Bank (SB) depositors from averting a broader financial disaster. US officials closed SB on March 12th following the collapse of SVB to prevent the financial crisis from worsening.

Even if speculative interest took a step back to examine potential monetary policies, the issue appeared to be under control. 

The Fed and the monetary policies implemented in response to the coronavirus outbreak may be somewhat to blame for the US financial crisis. Substantial easing in the first year was followed by a sharp tightening in early 2022, with the benchmark US interest rate rising from 0% to 5% in less than a year. 

Because of the Fed’s actions, the value of government bonds decreased, and borrowing costs rose, impacting bank capital.

Catastrophe May Have Been Avoided, But Market Mood is Deteriorating

Unfortunately, the market’s mood deteriorated once more during the middle of last week as shares of Credit Suisse Group AG fell nearly 30% before trading was suspended. 

It was when the Swiss National Bank (SNB) and the Swiss Financial Market Supervisory Authority (FINMA) revealed that Credit Suisse had met the capital requirements imposed on banks. FINMA said they would provide liquidity if necessary; meanwhile, the European banking sector began to collapse amid fears of contagion.

Finally, on Thursday, several significant US banks infused $30 billion in deposits into First Republic Bank. However, first Republic was also experiencing liquidity problems as customers rushed to withdraw their money.

European Market Suffering Similar Banking Stresses

After the ECB raised its benchmark rate by 50 basis points, it released a statement expressing that policymakers predicted inflation would be 4.6% on average in 2023 while growth would go up to 1.6% in 2024 and 2025. 

A sentence in the release said, “The latest ECB staff macroeconomic projections were finalized in early March before the current rise of financial market volatility.”

Following the ECB decision, President Christine Lagarde gave a statement and opened it by praising the resiliency of European banks. She continued by saying that policymakers are closely monitoring “present market tensions” and are prepared to act if needed to protect the Euro area’s financial and price stability.

Dramatic EUR/USD trading ranges from last week, March 13-17, 2023. Credit: Trading View

Despite the instability in the banking sector, Ms. Lagarde added that there was no trade-off between pricing and financial stability after raising rates, making it abundantly obvious that the central bank’s priority is still addressing the problem of price stability.

However, investors struggled to interpret her statements, and as the dust settled, the EUR/USD remained range-bound near the 1.0600 level.

Big Day for the US Fed Rate on Wednesday

On Wednesday, the Fed will reveal its monetary policy choice. 

Suppose US policymakers decide to raise interest rates by 50 basis points. In that case, they will put more pressure on already-stressed financial institutions, which might result in a lose-lose situation for the US Central Bank. 

Nevertheless, if they make a more covert move, it will signal to the markets that they are concerned, which might further the crisis and make them more susceptible to prolonged high inflationary pressures.

The preliminary March S&P Global PMI estimates, which gauge business health across major economies, will be included in the macroeconomic calendar in addition to the Fed’s decision. Furthermore, the US will report February’s Durable Goods Orders, which increased by 0.3% MoM.

The post US Market Ahead: Fed Rate Decision, S&P Global PMI, Durable Goods Order appeared first on CoinChapter.

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Filed under: Bitcoin - @ March 20, 2023 10:16 am