Forexlive Americas FX news wrap 23 Mar: BOE hikes by 25 basis points to 4.25%

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The Bank of England raised rates by 25 basis points as expected to 4.25% at the start of the NY session.

The market had been split up until yesterday when the CPI data came in much higher than expectations at 10.4% vs 9.9% expected YoY. That forced the hand of the Bank of England central bank to hike for the 11th time in a row. Nevertheless, the central bank did say that they expect inflation will probably fade fast. The expectations are still pricing in that there may be one more hike, but many analysts are saying that they’ve reached the end. BOE Bailey remained neutral by saying that he doesn’t know if 4.25% will be the peak. The statement also stressed the neutrality saying, “If there were to be evidence of more persistent price pressures, then further tightening monetary policy would be required”, but also said price growth was on course to “fall more sharply” than it previously thought in April – June period despite the Wednesday CPI data.

The GBP is ending the day mixed with modest gains versus the USD, EUR (+0.29%), CAD, and AUD, and declines vs the JPY (-0.44%) and NZD. The GBP was near unchanged vs the CHF. Earlier in the European session, the SNB raised rates by 50 BPs to 1.5%.

In other news today, initial jobless claims came in at 191K which was stronger than the 197K estimate and back comfortably below the 200 K level. Of importance as well is that this week’s data corresponds with the BLS survey week suggesting that once again the job data to be released in early April will remain strong.

Meanwhile, in contrast to that view, in the US debt market, yields continued their move to the downside as traders anticipate slower growth, lower inflation, and a more accommodative Fed toward the end of the year. This runs in contrast with the dot plot released yesterday which showed the Fed expects end of year 2023 rate to be at 5.10%. That implies another 25 basis point hike before steady policy. The Fed does not see any declines rates until into 2024. Meanwhile the January 2024 Fed funds contract is implying the average Fed funds rate to be 4% – 110 basis points less than the Fed projection. Something is amiss.

A snapshot of the US yields today shows:

• 2 year yield 3.793%, -18.8 basis points
• 5year 3.403% -17.2 basis points
• 10 year 3.389% -11.1 basis points
• 30 year 3.664% -3.2 basis points

In the US stock market today, the major indices closed higher in volatile trading. Recall from yesterday Treasury Secretary Janet Yellen in her testimony on Capitol Hill said that no further action was coming for depositors.

Today she shifted and said,“As I have said, we have used important tools to act quickly to prevent contagion. And they are tools we could use again. The strong actions we have taken ensure that Americans’ deposits are safe. Certainly, we would be prepared to take additional actions if warranted.”

The shift in her comments led to a modest rally into the close, but regional banks still remain under pressure. The KRE ETF (regional banks) fell -$1.21 or -2.78% and tested the low from March 13 at $41.94. The low price today reach $41.90 before the rebound to $42.24 at the close. Meanwhile First Republic fell -$0.80 or -6.0% to $12.50.

Looking at the strongest weakest of the major currencies today, the JPY is ending the day as the strongest of the majors. The EUR is the weakest. The USD is ending mostly lower with only a marginal gain versus the EUR. The USD is little changed versus the AUD . It fell the most vs the JPY (-0.62%) and the NZD (-0.56%).

.A snapshot of the markets near the end of day shows:

• Crude oil is trading at $69.36 after settling at $69.96
• Spot gold is up $23.94 or 1.22% at $1993.75. High-priced made it above $2000 for the second time this week peaking at $2003.28. On Monday, the high price reached $2009.75
• Bitcoin is trading at $28,251 after reaching a high price of $28,818. The high price yesterday reached $28,936. The prices still closing above its 38.2% retracement of the move down from the March 2022 high at $27,991.41.