Aximdaily
Is USD losing Reserve Currency status? Why Do Big Economies Ditch US Dollar? 

Weekly Market Outlook: US Fed and BoE Heading for Rate Hikes

Weekly Market Outlook – The Russian-Ukrainian war is still the main driver for global markets and it seems like it will last for a while. The ongoing political tensions have pushed crude oil prices to a 14-year high last week at $130 per barrel. Meanwhile, gold prices retouched $2000 per ounce with the intensified search for safe havens amid stagflation fears and geopolitical uncertainties. 

Macroeconomic events will steal the light this week as major central banks including the Federal Reserve and Bank of England are expected to raise interest rates to cool down inflationary pressures. The Reserve Bank of Australia will be publishing the meeting minutes for its meeting earlier this month. Key releases on the economic calendar include Canadian CPI figures, US retail sales, New Zealand Q4 growth numbers and Australian job data. 

Fed to Start Hiking Cycle 

With an overheating economy, booming labor market and accelerating inflationary pressures, nothing appears to hinder the Federal Reserve’s upcoming decision to raise rates this week. The Fed is expected to hike rates by 25 bp after concluding its two-day meeting on Wednesday. 

Market participants are pricing a 96.3%* chance that the Fed will hike the fed funds rate by 25 bp, according to the FedWatch Tool. A month ago, financial markets were anticipating that the central bank would raise interest rates by 50 bp, but given the economic, financial and geopolitical uncertainty emerged from the war between Russia and Ukraine, such a move seems to be very unlikely, at least for now. Forecasts for a 50bp move remains at 1.7%

*Numbers are continuously changing.

Weekly Market Outlook - Fed Interest Rates Forecasts

However, that doesn’t change the main consensus that the Fed is poised for six rate hikes before year end.

During his testimony before the congress earlier this month, Fed Chair Jerome Powell has made it clear that raising interest rates in March will be appropriate with inflation well above 2% and the labor market performing strongly. Powell did also refer to the bank’s readiness to aggressively hike the federal funds rates by more than 25bp at one or more meetings if it’s required to. 

US annual inflation rate accelerated to 7.9% in February, the highest since 1982. Energy was the biggest contributor and is expected to remain so given the recent spikes. Crude oil is trading with 44.5% YTD gains. Core inflation, excluding energy and food volatile prices, also spiked to its highest in 40 years. Inflation was seen peaking in March, but given the strong demand, supply constraints and geopolitical tensions, inflation will likely remain elevated for longer than previously anticipated. 

Weekly Market Outlook  - US Inflation

The US economy expanded by 5.60% in the fourth quarter of 2021. The job market printed stronger-than-expected job gains in the first two months while the unemployment rate edged down to 3.8% in February. 

While the economy is expected to show further resilience, some factors may contribute to the forecasts of the Fed’s policy path this year. The updated Dot Plot will reveal how policymakers are willing to raise interest rates and their expectation for economic activity given the evolving geopolitical outlook. The FOMC is always reluctant to commit to a preset course and affirms that monetary paths are always subjected to outlook changes. 

Since the decision is already priced in, the main driver for the USD will be how hawkish the statement and outlook will be. The DXY is trading near its highest since May 2020 and the USD forecast remains optimistic for the year. 


Open forex account and start trading market news today! Join AximTrade, the world's fastest-growing broker, and enjoy competitive trading conditions and top-notch trading services.

Bank of England Heads for a Third Hike

A quarter-point rate hike is expected from the Bank of England on Thursday. The drastic surge in inflation rates is pushing the bank towards a third rate hike in a row bringing interest rates in the UK to its pre-pandemic levels. It is expected to be followed by multiple rates before year end to tame inflationary pressures that have been intensified by the rising geopolitical tensions in Europe.

The BoE was the first major central bank to hike interest rates since the pandemic hit the global economy a couple of years ago. The bank increased interest rates in December by 15 bp and in February by 25 bp. The upcoming hike will bring UK borrowing costs to 0.75%.

In its February meeting, the bank voted unanimously to reverse its £895 billion of UK government bonds.

UK inflation rate surged to a multi-decade high at 5.5% in January. Inflation is now expected to overshoot 8% after the massive movements in energy prices. The BoE may have to hike rates multiple times in order to tame inflationary pressures.  Another five rate hikes may be on the table this year.

Weekly Market Outlook  - UK Inflation

Trade the News with AximTrade

AximTrade is a multi-asset broker and financial service provider in the financial markets with a set of advanced technologies and highly efficient trading platforms to enable traders to expand their abilities and opportunities, advanced Copy Trading with the latest technology, and an easy-to-use user experience.


free online forex course