The Federal Reserve Chairman Jerome Powell said during a Congressional Monetary Policy Committee hearing earlier this month that the Fed's interest rate meeting in March will initiate the first rate hike in over two years. Powell pointed to a rate hike of at least 25 basis points (0.25%), but he did not rule out higher rates. The Fed's final decision will focus on this month’s interest rate meeting.
More Focus on Fed Monetary Policy
The annual rate of the US consumer price index in February reached a 40-year high of 7.9%, and the monthly rate rose to 0.8%. Many market participants believe that if the Fed raises interest rates by only 25 basis points or even 50 basis points, it will not be enough to suppress the high inflation. The point is that the Fed must consider a careful and moderate pace of interest rate hikes while implementing the appropriate scale of tapering its bond purchases and shrinking its U.S. bonds balance sheet. Therefore, we must pay more attention to the details and outlook of the Fed's monetary policy and the rate hike rate on Wednesday night. The relevant details will give global investors insight into the Fed’s plan to tighten its monetary policies this year, directly affecting the market's investment sentiment.
GBP Could Test 1.3270 if the Situation Improves
In the past two weeks, the prospect of U.S. interest rate hikes has become evident, and the geopolitical tensions in Eastern Europe have caused European funds to flow into the U.S. dollar, pushing it to a nearly two-year high of 99. Suppose the Fed's interest rate hike signals tighter monetary policies, and the situation in Ukraine and Russia intensifies. In that case, it is believed that the US dollar could benefit and test the 100 mark, or it may reach the May 2020 high of 100.54. On the contrary, the dollar’s correction could test the technical support level at 97.73.
Following the Fed's monetary policy meeting is the Bank of England's interest rate meeting. Interest rate futures indicate that the Bank of England could raise interest rates by another 25 basis points to 0.75%. The reason is that inflation in the United Kingdom broke through its previous peak again in February. Based on the Bank of England's recent use of interest rate hikes to suppress inflation, I believe there is no suspense regarding the next interest rate hike. However, due to the tense relations between Ukraine and Russia and Western countries' joint sanctions against Russia, the British economy is facing significant challenges. Therefore, investors watched the situation develop cautiously, with sterling coming under pressure and falling to a 15-month low against the dollar. The GBP/USD could test the lows at 1.2860 if global geopolitics escalate further. On the contrary, if the situation changes and the investment sentiment improves, it is expected to regain lost ground and retry the 1.3270 or 1.3350 resistance levels.