EM Market Report Statue of Liberty

And I’m free, free fallin

Thanim Islam
Thanim Islam 14 March 2023

- 2-yr treasuries drag USD weaker

- UK wages slow for first time in a year

- US inflation to add to market mayhem?


  • USD remained under selling pressure as markets price in the Fed to pause on hiking rates over the coming months, and will then actually start cutting interest rates from the summer onwards. 2-year treasury yields have now fallen 109 basis points over the last three working days – the steepest decline since 1987.
  • Interest rate pricing for the UK suggests one more hike of 0.25% before the BoE pauses, and from the ECB markets only expect 0.61% worth of rate hikes across this year. However, officials familiar with the matter still suggest the ECB wont steer away from a 0.50% hike on Thursday.
  • Stocks fluctuated across the day, with the S&P 500 trading in a 2.5% range and by the end of the European trading hours, the index was unchanged from the open – citing indecision as markets try to work out how to trade the turmoil.
  • Amongst the uncertainty JPY gained across all G10 currencies.
  • UK job numbers this morning played into the hands of the BoE, with wages slowing for the first time in a year. Wages in January fell more than expected to 6.5% down from 6.7% The BoE’s dovish stance is no longer looking like an outlying view.


Market data

* Daily move - against G10 rates at 5:00pm, 13.03.23

** Indicative rates - interbank rates at 5:00pm, 13.03.23

Table (18)-2

Data points

Table (19)-2


  • None today.

Our thoughts

Volatility in the markets is now at the highest since October as the fallout from the collapse of Silicon Valley Bank and Signature Bank continues to rile markets. Interest rate expectations collapsed yesterday along with the 2-year yield on US treasuries, causing a decline on the USD and should this continue then this will put further pressure on the currency.

The BoE were once the outlier amongst a host of hawkish central banks, but no more. Should other central banks indicate no further rate hikes, and should we see risk appetite come back into the markets, then GBP could outperform.

Focus today falls on February’s inflation numbers from the US. Headline inflation is expected to ease to 6% and core inflation down to 5.5%. A lower figure here and no doubt markets will continue to wager that the Fed will be stopping their rate hike cycle early. A higher figure and this could give the USD some support, but not as much you would have got following recent events.

Chart of the day

2-year yields on US treasuries remained in free fall as markets now consider that the Fed will stop the rate hike cycle early. The impact on the US dollar can be seen with the US dollar index down 1.5% since yields started falling. As a result, the 2-10yr yield curve has inverted considerably.

Today’s inflation numbers could be interesting to see the impact on rates and the USD given the current backdrop in financial markets.

14032023 cotdSource: Bloomberg Finance L.P.

Have a great day.