EM market report

All eyes on the Fed

Thanim Islam
Thanim Islam 21 September 2022

GBP: Sterling still susceptible to risk

EUR: Putin's announcement weakens the euro

USD: Dollar in demand ahead of Fed meeting


Risk appetite came out of markets in the afternoon after the Riksbank surprised markets with a 1% rate hike, and signalled more to come. As we have mentioned before, the drop in equities dragged sterling lower as well, given its correlation to risk.

Price action on sterling today will likely be dictated by how equity markets perform ahead of the Fed meeting this evening.

Tomorrow's Bank of England meeting is still the focus for sterling markets, to see if the Bank of England will be changing its stance on future interest rate hikes, following Liz Truss’ energy bill plan to help households. She reiterated yesterday that the £2,500 annual cap on energy bills should bring down inflation by 5%, and that her focus remains on economic growth. So could this mean the Bank of England will wait to see the impact of the energy cap on inflation before deciding how they raise interest rates going forward? If so, will markets perceive this is a negative for GBP in respect of the Bank of England slowing its pace of hikes, OR will they see it as a positive for sterling, given that this could in fact mean that the UK avoids a recession?

On Friday we have also have the emergency budget, which will likely reveal how the government intends on funding their energy bill rescue plans for households and business. One of the main concerns for markets has been that, should the government need to borrow more to fund the plans, then this could lead to a further deterioration of the country’s current account deficit.

Also, Chancellor Kwarteng is set to unveil the government's growth plan on Friday.


News this morning that Putin has announced partial military mobilisation, and that Russia will defend its territory with all available means, has had a direct impact on the euro, which has weakened. This exposes the euro to further weakness depending on developments, and looks set to be the prime mover on the euro going forward.

We could well see a test of the recent low on the EURUSD pair, and perhaps we could see GBPEUR break out of its downtrend.

Later today we have ECB member Guindos speaking.


The dollar is in demand ahead of the Fed meeting tonight. Demand for the dollar has been further exacerbated by the announcement by Vladimir Putin this morning.

This evening's Fed meeting is the main event for the day. Markets are expecting a 0.75% rate hike with a 16% chance of a 1% hike.

The 2022 dot plot will be in focus, with expectations for the Fed to raise their median 2022 dot from 3.375% to the 4-4.25% region. Growth forecasts are likely to be reduced, with inflation likely to be revised higher.

Markets will also be looking for indications of another 0.75% rate hike in November, and communication on future rate hikes could well change from faster rate hikes to longer hikes.

Aside from the January Fed meeting, the US dollar has generally weakened on Fed meeting days, but in general the continued hawkish tone from the Fed should keep the dollar supported over the medium term.

Chart of the day 

Dollar priced for perfection? The dollar index has charged back to the highs we saw earlier this month, with markets risk-off, especially following those comments from Putin.

Four out of the last five Fed meetings have resulted in the dollar weakening on the day of the announcement. Could we see similar price action today?

0.75% is priced in, but it's that accompanying statement that should drive dollar moves this evening.

Chart of the day 21/9

Market rates 


€1.144 ↑

US dollar


Australian dollar


South African rand 


Japanese yen 


Have a great day.