Daily Market Commentary 23rd of March 2023

The Fed raised rates by 25 basis points, as expected, but warned of only one more rate rise this year. This is seen as ‘dovish’ and a ‘tip of the hat’ to the current banking crises. The Fed sees the inflation crises as nearing an end, as the tighter monetary policy takes effect and the war on inflation comes to an end. This is good news for markets, but if this inflation projection turns out to be a ‘blue-sky’ and an extremely brave prediction, this could undo all the good work the Fed has done, to date. The UK released their latest inflation number and it was a shocker, rising to 10.4%, reversing the ‘peak inflation’ theory. The Bank of England has much more work to do and perhaps sends warning signals to the Federal Reserve. The Fed also mentioned they were addressing the banking crises, which would have had a huge impact on this latest decision and projections into the future. The bail-outs will not be funded by existing funds and the fed will need to print more money, reversing QT and driving inflation upwards. The dovish tone, drove the US Dollar lower, allowing the EUR to climb up towards 1.0900, while the GBP surged above 1.2300, ahead of the key rate decision tonight.

Commodity currencies were boosted by the softer reserve, with the AUD jumping back to 0.6750, while the NZD rebounded back towards 0.6300. Inflation is clearly out of control in the UK, once again, so it seems very pre-mature that the Fed seems to believe they are on top of it? This is clearly a decision based on the banking crises, which is far from over. The Fed have a history of massaging the truth, as they denied the existence of inflation, early in the cycle. The Fed also called the runaway inflation ‘transitory’ for months after it was obviously not. Expect more market turmoil.