The Morning Update

The USD extends gains, oil prices weaken, equity markets are mixed, and US yields are steady ahead of the Fed meeting. Currency markets remain under pressure, while global equity markets hold steady heading into the Federal Reserve's interest rate decision and statement today. The Fed is widely expected to keep interest rates on hold today, while market pundits will analyze Fed Chair Powell's comments minutely. "They'll make it clear that they're obviously not ready to cut rates. They need a few more data points to feel confident that inflation is heading back to target", said Zandi, chief economist at Moody's Analytics. "I expect them to reaffirm three rate cuts this year, so that would suggest the first rate cut would be in June." In Europe, ECB President Lagarde remains non-committal in her speech today on future rate cuts, saying, "Our decisions will have to remain data dependent and meeting-by-meeting, responding to new information as it comes in." This implies that even after the first cut, we cannot pre-commit to a particular rate path." Elsewhere, oil prices weakened after two days of gains as investors grew cautious heading into the Fed rate decision. In focus today, alongside the Fed's interest rate decision, the Fed monetary Policy Statement, and the FOMC Economic Projects, markets will also be monitoring EUR Consumer Confidence PREL, BoC Summary of Deliberations, and ECB's Schnabel speech to help provide intraday direction to currency markets.

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In Other news. Gucci owner Kering's stock tanked 14% after an Asia profit warning, dragging down European luxury brands. Intel awarded up to $8.5 billion in CHIPS Act grants, with billions more in loans available. Brazil police are eyeing criminal charges against ex-president Bolsonaro. Netanyahu insists ground troops will enter Rafah despite US opposition. Germany announces a Euro 500 million package to bolster Ukraine's artillery stocks. Hong Kong passes a strict new security law. The US weighs sanctioning Huawei's secretive Chinese chip network.

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In currency markets. The JPY extends its weakness and approaches levels where the central bank may look to intervene. The USD continues to extend gains heading into the FOMC meeting and interest rate decision. CNY holds steady, while Asian currencies weaken by 0.2% on average vs USD. Trading currencies remain under pressure, with JPY & SEK tumbling by 0.6%, NZD & CHF weakening by 0.4%, AUD & NOK falling 0.25%, and MXN & ZAR slipping by 0.15% vs USD.

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In commodity markets. Oil, Copper & Wheat prices weakened by 1%, Natural Gas prices tumbled by 1.25%, Gold prices eased by 0.15%, Silver prices fell 0.5%, and Soybean prices firmed by 0.5%.

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CAD retests 3-month lows vs. USD, under pressure from weaker commodity prices, and following Tuesday's report, Canada's annual inflation rate cooled to 2.8%. Expectations are increasing that the Bank of Canada will ease its domestic interest rates as soon as May. The prospect that the BoC could be the first major central bank to reduce interest rates will pressure the Loonie against its G10 peers. The focus will be on the BoC Summary of Deliberations; the document provides insights into the BoC's officials' discussions about their monetary policy decisions. Today, the primary focus will be on the Fed Monetary Policy Statement for signals on the direction of interest rates in 2024.

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EURCAD range continues to flatline, holding within a tight range with both the ECB & BoC facing increasing pressure to lower interest rates as inflation pressure eases for both counterparts.

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EUR remains under pressure heading into the Fed interest rate policy decision. Euro also remains under pressure following ECB President Lagarde's speech, in which she reiterated that the ECB remains data-dependent in its approach to reducing interest rates. According to the CME FedWatch Tool, the Fed's probability of keeping rates on hold has increased to 36%. Intraday, the Fed statement at 2 pm EST will be the primary driver for markets today.

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GBPEUR remained on the sidelines after ECB Lagarde maintained her data-dependent rhetoric, and investor focus shifted to the BoE interest rate decision on Thursday.

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GBP fails to hold above 1.2700 ahead of the Fed and after soft UK inflation data. Today, the UK Consumer Price Index declined to 3.4% y/y in February, down from 4% in January. The 3.4% print was the lowest the UK has seen since September 2021 and came in below market expectations of 3.6%. Core inflation was also below expectations at 4.5% in Feb vs 5.1% in January. The UK still has the highest inflation levels amongst the G7 economies. It is widely anticipated to be the last of the major central banks to lower interest rates, possibly as late as Q4/24. Intraday, the Fed Chair comments will be the primary driver of currency market volatility, potentially seeing the pound fall below 1.2650.