Forex

The pair is constructive after the US Fed was constrained to a conservative stance last week due to the banking turmoil and the BoE was forced to another increase due to the reacceleration in inflationary pressures

The Federal Reserve's communication contributed to pressure on the dollar. The US Treasury Secretary, Janet Yellen, has taken the spotlight as a market driver. On Wednesday, her announcement on "blanket" bank deposit insurance overshadowed the dovish Fed hike.

The two central banks appear to have a different approach on how the recent financial turmoil impacts monetary policy and the more hawkish stance by the ECB is supportive for the pair

The Fed raised the policy rate by 25 bps to 4.75%-5%. However, its rhetoric is more dovish than the ECB’s, which is EURUSD supportive. The spread between the German and US 2-year notes (top chart) has charted a series of higher troughs followed by higher peaks. This denotes the relative hawkishness of the ECB over the Fed. The EURUSD is sensitive to this spread with a correlation coefficient of 84%.…

The Bank of England faces rising core inflation, with a recent increase to 6.2% from 5.8% in January. Service-sector inflation is a concern, with hospitality inflation proving difficult to combat. The Bank is paying close attention to inflation numbers and is likely to announce a 25bp rate hike, but will reiterate its commitment to using tools for financial stability. If broader inflation data continues to improve, the Bank may pause…

The pair comes under pressure today, as markets are on edge ahead of the monetary policy decision by the US Fed (Wednesday) and the Bank of England (Thursday)

The pair retreats as the accounts of the last policy decision revealed that RBA policy makers will consider pausing the hike cycle, as markets now brace for the US Fed policy update on Wednesday

UBS agreed to buy troubled Credit Suisse as authorities strive to safeguard the financial system, but markets are on edge ahead of the US Fed, sending flows to the Japanese Yen

USDOLLAR’s correlation coefficient with the real rate is 66%. As long as yields decline and markets reassess the Fed’s actions for March, the dollar is likely to be influenced to a large degree.

NFP Live Trade - 10 March 2023