Week Ahead – Fed decision to fuel volatility in nervous market
XM Group | Mar 17, 2023 08:46AM ET
Fed dilemma
It’s going to be a difficult meeting for Fed officials on Wednesday, who will have to decide whether the priority is to safeguard the stability of the US financial system or fight inflation at all costs.
Traders are betting that the episode in the banking sector will force the Fed to stop its tightening cycle soon, perhaps even at this meeting. The implied probability of a quarter-point rate increase next week stands at 80%, with a 20% chance that the Fed does nothing at all. Beyond that, markets are pricing in rate cuts for the summer.
Bank troubles aside, the outlook for the Swiss franc looks positive. The SNB is still intervening in the FX market but it has switched sides in recent quarters - it is now buying francs on the open market to help the currency appreciate. Coupled with ongoing rate hikes and resurfacing concerns about the world economy, the environment is favorable for the safe-haven franc.
The wild card is Credit Suisse, but judging by the forceful policy response, it is likely that it will be protected.
Finally on the data front, the spotlight will fall on the Eurozone, where the latest PMI business surveys will be released Friday. Over in Canada, inflation and retail sales stats will be released Tuesday ahead of the minutes of the latest Bank of Canada meeting on Wednesday.
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