Will The Fed Shock The Market With An Inter-Meeting Rate Hike?

The U.S. dollar benefited from safe-haven flows amid risk-off sentiment. Cash flows into the dollar do not only stem from escalating geopolitical tensions at the border of Russia and Ukraine but also from rate hike speculation. Traders are increasingly convinced about the possibility of a Federal Reserve 50-bps rate hike next month. There was speculation about a rare inter-meeting Fed move before the Fed’s March 15-16 meeting but this move is very unlikely. With only the January data at hand showing broadening price pressures and amid lingering geopolitical unrest the Fed will favor to wait and taking in further data before making such aggressive move.

St. Louis Fed President James Bullard, who favors three hikes by July, said the Fed isn’t “in that mode” of emergency rate hikes, noting that there is little need to surprise markets now given the tightening they are pricing in already.

Nevertheless, traders should be aware of a potential escalation around the Ukraine border that can sent the markets into a tailspin.

EUR/USD – Poised for a slide towards 1.1250?

After the resistance around 1.1490 proved its hold, the euro seems to be primed for a move south toward the support area between 1.1270 and 1.12. We will maintain a neutral stance as along as the euro remains between 1.1450 and 1.12 but in case of a renewed break below 1.1180, our next target will be at 1.11.

GBP/USD: The cable was recently captured between 1.3650 and 1.35. Bulls will now wait for a break above 1.3670 while bears will wait for a slide below 1.3490 in order to sell sterling toward 1.34.

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