EM Market Report

First we're going to speed it up, then we're going to slow it down...

Thanim Islam
Thanim Islam 13 March 2023

- USD declines as markets ease rate expectations.

- Fed acts to restore confidence

- Goldman Sachs call for no rate hike

Over the weekend

  • Despite US nonfarm payrolls coming in higher than expected at 311,000; the combination of a higher unemployment rate alongside wages not climbing as expected as well as the issues with SVB Financial Group caused markets to considerably dial back rate hike expectations by the Fed. Markets slashed 70 bps worth of rate hikes by year-end with Goldman Sachs calling for no rate hike in next week's meeting. To no surprise the USD declined across the board as front end yields declined as well.
  • Equities continued to slide as well going into the weekend, as markets continued to worry about the US financial system.
  • Over the weekend, US policymakers acted in unison to restore confidence in the US banking system and announced two key measures. (i) all uninsured depositors of SVB will be fully covered. (ii) the Fed announced a new liquidity tool, the BTFP (Bank Term funding Program), which will allow financial institutions to access dollar liquidity. As a result equity futures have rebounded higher on a relief rally.


Market rates

* Daily move - against G10 rates at 8:00am, 13.03.23

** Indicative rates - interbank rates at 8:00am, 13.03.23

Table 51

Data points

  • None


  • GBP – BoE Dhingra

Our thoughts

  • So a lot to take onboard over the last few days following the fallout with SVB Financial Group. The main takeaway in the FX market is the significant easing in the Fed rate hike expectations. At one point last week we were looking at a 60% chance of a 0.50% rate hike by the Fed, which has now deteriorated, causing USD to weaken significantly. As mentioned above, Goldman Sachs is even calling for no hike next week, which would be negative for USD as well.
  • There would be an argument that the USD could gain on its safe haven status, but it seems JPY and CHF are the preferred currencies.
  • Very little from markets today aside from dove BoE Dhingra speaking today. Highlights this week, will be UK job news and US inflation tomorrow and the ECB rate decision on Thursday. 

Chart of the day

To say the interest rate market has been volatile would be an understatement. Following Powell’s testimony last week, markets began to bet on the Fed having to speed up their pace of rate hikes to combat inflation with December rate expectations jumping to 5.6%. But since last Thursday we have seen markets now bet the Fed will have to slow the pace of hikes with 70 bps worth of rate hikes wiped off.

As a result, we have seen a bullish disinversion of the US yield curve which ultimately is negative for USD.

chart13-3Source: Bloomberg Finance L.P.

Have a great day.