Foreign exchange trading reminder: the Silicon Valley bank incident weakened the Federal Reserve's interest rate hike expectations, the dollar continued to fall, and the European Bank's interest rate hike expectations boosted the euro

On March 13, Beijing time, in the morning of the Asian market, as the Silicon Valley Bank incident weakened the Federal Reserve's interest rate hike expectations, the US federal funds futures December contract jumped 20 basis points to 95.26. The US dollar index fell 30 points in the short term, and is currently trading around 104.14. The dollar fell against the yen once to 1%, and then rebounded. It is currently down 0.44%, trading around 134.44.

The dollar weakened on Friday, closing down 0.57% at 104.64 after U.S. non-farm payrolls data for February showed slower wage growth, suggesting that easing inflationary pressures could keep the Federal Reserve's pace of rate hikes modest, making the dollar less attractive.

The U.S. economy added jobs at a breakneck pace in February, but slowing wage growth and rising unemployment prompted financial marekts to cut expectations for a 50 basis point rate hike when Federal Reserve policymakers meet in two weeks.

Earlier this week, Federal Reserve Chairperson Jerome Powell's testimony to Congress was seen as hawkish and boosted the dollar, which fell against all major currencies but was essentially flat against the Canadian dollar, because Treasury yields are higher than those of other Treasuries.

The collapse of Silicon Valley banking financial conglomerate SIVB. O, the largest bank failure since the financial crisis, exacerbated the plunge in Treasury yields, and California regulators moved quickly to protect depositors at the start-up lender.

Kevin Flanagan, head of fixed income strategy at WisdomTree: "In any case, I think there is significant safe-haven buying in the market. There are concerns about potential banking stress."

The jobs report showed average hourly earnings rose 0.2% in February, compared with 0.3% in January, rising to 4.6% year-on-year. Economists expect hourly earnings to rise 0.3% in February, up 4.7% year-on-year.

Joe Manimbo, senior market analyst at Convera, said the dollar was likely to move in a range because the slowdown in inflation to the Fed's 2 per cent target would not be smooth sailing. "When the market raised its expectations for peak interest rates, we saw the dollar move up two steps. But once the dust settled, we saw the dollar take a step back," said Mr. Manimbo. "The market already expects the Fed to pause interest rate hikes this year, but when it will pause is unknown."

According to CME's FedWatch tool, the Fed funds rate futures trend shows that the probability of Fed policymakers raising interest rates by 50 basis points when they meet on March 22 has dropped to 41%, and the probability was as high as 71.6% this week.

Dec. Mullarkey, managing director of investment strategy and asset allocation at SLC Management, said the market is overly optimistic about the prospect of a 50 basis point rate hike at the Fed's next meeting.

The SVB incident may be the reason for the Federal Reserve to suspend interest rate hikes, the agency said. Commenting on the intervention of US financial regulators in the SVB incident, the agency said that the joint statement of the US regulatory three agencies will restore market confidence. But from the Fed's perspective, there are other dangers to assess, which will take some time. So hopefully this will help them have a good reason to pause interest rate hikes, because frankly, creating financial stability is the Fed's top priority. All in all, the key message the US authorities want to send is that the situation is in their hands. This is to be expected, because the US will not allow its banking system to fail.

The European Central Bank's interest rate hike expectations supported the euro, which closed up 0.53% against the dollar at 1.0637 on Friday. Core inflation in the euro zone continued to climb in February, and a 50 basis point interest rate hike in March is more likely.

Ms Lagarde, ECB president, said the central bank was prepared to raise borrowing costs by a further 50 basis points at its March meeting. "We are very likely to raise rates by 50 basis points," Ms Lagarde said. "That was the decision we made at our last monetary policy meeting and all the data we have seen in recent days confirm that it is very, very likely."

Last Friday, the pound continued to rise against the dollar, closing up 0.91% at 1.2031. In early Asian trading on March 13, Beijing time, the pound rose above the 1.2100 mark against the dollar and is now back near 1.2090.

As the conflict between Russia and Ukraine continues and European countries continue to impose sanctions on Russia, inflation in European countries remains high, and many people are facing serious living pressures.

Food inflation in the UK rose 17.1 per cent in February from a year earlier, the highest on record, driven by higher prices for eggs and vegetables, while the UK was unable to import sufficient fresh fruit and vegetables from places such as Spain due to climate impacts.

Bank of England policymaker Catherine Mann is concerned that high inflation in the UK will require the Bank of England to take further interest rate hikes.

foreign exchangebrokerTickmillMr. Hart, the Group analyst, said in a note that sterling had risen on the back of improved UK growth data but that data analytics suggested caution was needed as the BoE focused on inflation. GDP grew 0.3 per cent month-on-month in January and fell 0.5 per cent in December. Separately, the services sector led the recovery but manufacturing and construction output both fell. He said the BoE's bigger focus was on measuring "the persistence of inflation". "With that in mind, next week's wage data will be the key UK data to watch."

At 10:30 Beijing time on Friday (March 10), at the last policy meeting of Governor Haruhiko Kuroda before leaving office in April, the Bank of Japan announced that it will maintain current interest rates unchanged, and short-term and long-term interest rates are expected to remain at current or lower levels. The Bank of Japan maintained the annual purchase limit of ETFs at 12 trillion yen and said that the Japanese economy is expected to recover as the impact of the epidemic and supply constraints subside. After the resolution was announced, the dollar rose more than 100 points against the yen in the short term.

After the Bank of Japan maintained its policy unchanged, the dollar jumped against the yen, touching 136.99 at one point, then fell back, and finally closed down 0.79% at 135.05.

While this "no surprises" decision was in line with most market observers' expectations, many believed that the Bank of Japan's days of yield curve control (YCC) were numbered, leading people to digest the possibility of some central banks making policy adjustments at Kuroda's last policy meeting.

On March 13, Beijing time, in early Asian trading, due to the rising risk aversion in the market, the intraday decline of the US dollar against the Japanese yen expanded to 0.50%, falling below the 135.00 mark, and is currently trading around 134.36.

Key data and events

Data to watch on March 13: U.S. Conference Board Employment Trends Index for February, Canada's National Economic Confidence Index for the week ended March 10

The major event to watch on March 13: the Eurogroup finance ministers' meeting was held.

institutional perspective

1. Institutions: The Federal Reserve is unlikely to raise interest rates by 50 basis points this month, and will even "pause interest rate hikes";

Institutional commentary points out that, on current trends, the Federal Reserve is not expected to raise interest rates by 50 basis points at all this month, and may even "pause rate hikes". The chain reaction of Silicon Valley bank failures will take time to fully manifest. While depositors are bailed out, this is at the expense of unsecured creditors, which will lead to increased bank financing. So while the event itself may not prevent the Fed from continuing to fight inflation, even the mere potential systemic risk, however slight, will give the Fed a temporary choice to ease rather than tighten financial conditions. So regardless of the data we get, this week's inflation and retail sales data will largely be "a sideshow"

2. Institutions: The SVB incident may be the reason for the Federal Reserve to suspend interest rate hikes.

Institutional comments on the intervention of US financial regulators in the SVB incident: Today's joint statement of the three US regulatory agencies will restore confidence in the market. But from the Fed's perspective, there are other dangers to assess, which will take some time. So hopefully this will help them have a good reason to pause rate hikes, because frankly, creating financial stability is the Fed's top priority. All in all, the key message the US authorities want to send is that the situation is within their control. This is to be expected, because the US will not allow its banking system to fail

3. Barclays adjusted the Federal Reserve's interest rate hike expectations, and now expects to raise interest rates by 50 basis points in March;

Economists led by Barclays Marc Giannoni said in a March 10 note that they now expected the Fed to raise the base rate by 50 basis points at its March meeting, as the latest jobs report confirmed "the underlying growth outlook is stronger than it was in early February". Barclays predicted that after March, the Fed would raise rates by 25 basis points each in May and June, taking the federal funds rate to a range of 5.5% to 5.75%, "where we now expect to remain until the end of the year". Given the uncertainty of February's data and "recent signals of trouble at Silicon Valley banks portend the risk of broader trouble", the adjustment is "in suspense"

4. TD Securities: The European Central Bank may raise interest rates further at its upcoming meeting.

With US interest rate expectations rising rapidly, the euro is likely to remain range-bound against the dollar EUR/USD. Analysts at TD Securities said in a note that the ECB is second only to the Federal Reserve in importance, and the movement of the dollar shows a high degree of sensitivity to the Fed's dynamics. The dollar moves closely with the market-priced Fed end point rate, but the euro has yet to show a correlation with the EUR interbank rate. The ECB is expected to raise interest rates by 50 basis points at its meeting on March 16, another 50 basis points in May, and a final 25 basis point hike in June

5. Barclays analyst Cau said that the overheating of the U.S. economy will put pressure on the stock market.

Stocks appear to be pricing in more hawkish Fed policy after comments by Federal Reserve Chairperson Jerome Powell this week, but Barclays strategist Emmanuel Cau said a hard landing in the US economy could still not be ruled out. Cau's research team said tonight's non-farm payroll report and next week's inflation data could add pressure to stocks. The last time the US yield curve inverted to this extent was during the 1981 recession, when stocks fell sharply

6. ABN Amro: The UK's January GDP rebound will not change the Bank of England's policy path.

James Smith, a developed markets economist at ING, said in a note that UK data showing a rebound in January GDP meant little to Bank of England policymakers, who were more focused on high inflation. GDP grew 0.3 per cent in January but the underlying volatility of the data itself suggested it might have actually been flat, he said. He added that the fall in gas prices meant any recession was likely to be very mild and technically entirely avoidable. The next test for the Bank of England will be whether wage growth figures due next week show any significant signs of peaking. He expects the Bank of England to raise interest rates by 25 basis points at its March meeting

7. Societe Generale: The European Central Bank is unlikely to issue a surprise policy on March 16.

Socie ́ te ́ Ge ́ ne ́ rale interest rate strategists wrote in a report that the European Central Bank is not expected to surprise the market with too many moves in monetary policy decisions, and the market's reaction is expected to depend on the hawkishness of Lagarde's press conference. In line with market expectations, Socie ́ te ́ Ge ́ ne ́ rale expects the European Central Bank to raise interest rates by 50 basis points on March 16, bringing the deposit rate to 3.00%.

8. Fanong Credit: Kazuo Ueda may seek stability in the early days of his tenure as governor of the Bank of Japan;

David Forrester, strategist at Cre ́ dit Agricole in Singapore, said the yen would follow US Treasuries and investors would wait for the Bank of Japan's monetary policy actions under the next governor, Kazuo Ueda. "The yen will continue to move in the opposite direction to US Treasury yields. A further inversion of the US Treasury yield curve could be a limit to the upside of the dollar/yen. Mr. Ueda is likely to seek stability in his first meeting or two as governor before considering policy adjustments. The relatively short deliberation time at this meeting and the unanimous vote indicate that the Bank of Japan does not want to adjust policy today."