USD

We can’t remember an FOMC meeting with so many projected potential outcomes currently on the table for this afternoon’s meeting. Whether you believe in a hike, a pause, a pause followed by a hike later in the year, or even a cut, we could end up anywhere later today. Market-implied probability favors a 25bps hike as we near a likely terminal rate (sufficiently restrictive), but you would be wise not to put your house on it. What the Fed says about recent market events and the prospects for the US economy, coupled with their updated forecasts given the recent banking woes, matters as much as anything to markets. In the meantime, the dollar remains under pressure, with the dollar index (DXY) now down, approaching 3% from the recent high. 

EUR

Despite the recent slowdown in Euro area economic data, reflected by the sharp contraction amongst the key ZEW surveys for the region and Germany, the single currency has increased daily since last week’s ECB (50bps hike) meeting. So far, that call by the ECB looks sound and could yet impact the decisions from the Fed and then the BoE tomorrow. During a speech earlier today, the ECB’s Lagarde also remains steadfastly resolute, vowing a ‘robust’ ECB policy. That is the third time we have heard from her over the past week, so you must applaud the ECB’s ongoing visibility, given the nervous backdrop. Back to the single currency, the chances of the recent 3% rally for EUR/USD continuing will be down to post-Fed market risk appetite. Therefore, expect the single currency to go with broader stock market moves on the day.

GBP

The latest UK inflation data saw headline yearly inflation unexpectedly increase to 10.4% during February, having been predicted to have fallen from 10.1% to 9.8%, marking the first increase in two months. Core inflation also jumped from 5.8% to 6.2% annually over the same period. The surprising increase in inflation might make tomorrow’s BoE meeting more likely to conclude with another rate hike. However, much the same as the Fed, nothing is certain in this new normal. The pound continues to grind higher, with GBP/USD up another 0.5% today. 

JPY

The Yen has played to script over the past few days, with USD & EUR/JPY pushing higher. A board risk-friendly backdrop has encouraged a departure from the safe-haven Yen. USD/JPY has bounced by over 1% over the last two days, with activity on EUR/JPY increasing by around 1.75% during the same period. Tomorrow's Japanese National CPI will likely impact the Yen's short-term profile, with expectations of broad softening amongst the data somewhat helping to justify the BoJ's decision to maintain their YCC program amidst previously surging yields.  

CAD

With Canadian inflation dropping to unprecedented levels in over a year, the recent decision to pause rate hikes from the BoC looks sound. Friday’s retail Sales data could further strengthen their position. USD/CAD currently seems stuck between a pausing BoC and a weaker USD, ensuring that the pair remains close to 1.3700 for the most part.

MXN

President AMLO highlighted that the local economy remains healthy despite the ongoing US banking crisis. The Peso also continues to claw back recent losses as broader risk sentiment improves, which will help to drive emerging market currencies higher. Despite the pullback in USD/MXN, the pair remains roughly 3% above the recent low, highlighting that the Peso has more heavy lifting to do before it returns to its recent high (USD/MXN low).

BRL

Recent worries over the absolute level of the Brazilian interest rates, and the potential impact on the Brazilian economy, may be helping to impact the profile for the Real, as USD/BRL bucks the trend and drives around 0.5% higher amidst a broadly weaker greenback elsewhere.