Hike or hold the Federal Reserve’s dilemma as the committee’s 2-day meeting ends. Currently, more than 60% of economists believe the committee’s 11 members will choose to hike interest rates by 0.25%. Just under 40% believe the Fed will keep the Federal Fund Rate unchanged. The dilemma with the Regulator is that they want to send a clear message that inflation and the liquidity crisis are not in conflict. A 0.25% hike will take the Fund Rate from 4.75% to 5.00%, the highest since before the 2007-2008 banking crisis.
Interest Rate Decision and Insured Funds
Economists believe that with a 25-basis-point hike, the Fed can send a clear message that the liquidity problem is not yet a “crisis”, and they can keep fighting inflation. The weaker rate hike and rebound in the banking sector have supported the stock market over the past 2-days. Additionally, if the Federal Reserve unexpectedly chooses not to increase interest rates, the stock market may again be supported. However, this is only possible if it doesn't spark further speculation of liquidity issues.
Portfolio managers also hope the Fed will convince the Federal Government to increase the deposits insured. Currently, Capitol Hill has only approved guarantee deposits below $250,000. If this is raised, it may further increase investor confidence and support the stock market further.
The Currency Market
The US Dollar price this morning is again declining, but traders should note that the exchange rate will largely depend on tonight’s event. The US Dollar index during this morning’s Asian session is slightly lower, but some exchange rates are experiencing strong price movement against the Dollar.
The Pound is currently experiencing the strongest climbs against all currencies. The price of the GBP/USD has increased by 0.45% since the inflation announcement this morning. The shockingly increasing inflation has sparked a bullish price movement from 10.1% to 10.4%. Investors were previously expecting the inflation rate to decline to 9.9%.
Tonight’s interest rate decision by the Fed and tomorrow’s Bank of England rate decision will be the main price driver over the next 24 hours. Traders are now contemplating if the Bank of England will take a more hawkish stance after today’s Consumer Price Index.
The Euro has also experienced positive price movement after the European Central Bank’s Main Refinancing Rate hit 3.50%. This week, the ECB’s President has also been hawkish in her 2 press conferences. Mrs. Lagarde has stated the bank has set an “upward path” for interest rates. However, the economic data continue to be worrying. Yesterday’s ZEW German Economic Sentiment declined to 13.0, the lowest in 3 months.
GBP/USD Technical Analysis Video
NASDAQ - Large Banks Reassure Investors on Liquidity
The NASDAQ during this morning’s Futures Market declines by 0.45% moderate decline considering the market is yet to open. However, the price during yesterday’s trading session increased by 1.45% and renewed March’s monthly highs. A rebound in banking stocks largely supported the upward trend movement, reports from large US banks on their readiness to support the market, and also the expected end to the hiking cycle.
When looking at technical analysis, investors can see both positive and negative elements. Over the past week and a half, the price action has provided clear signals and formed a bullish impulse wave. Trend-based indicators have also given similar indications, such as the Depth of Market and Volume-Weighted Average Price.
However, the main concern for investors is that the bullish price movement has taken to the index to previous resistance levels. The index collapsed on three occasions in this range within the first 2 weeks of February. The price range is also at its highest since September 2023. On the other hand, investors should note that even though technical analysis is vital to finding entry points, the asset will still largely be driven by order flow and tonight’s rate decision.
Investors' confidence significantly improved after Bank of America, JP Morgan, Goldman Sachs and Wells Fargo released statements confirming their willingness to lay out assistance in the amount of $30 billion. The funds will be used to ensure existing deposits alongside the support already confirmed by the Fed and Treasury. Investors are hoping the situation has somewhat normalized.
The improved investor sentiment can also be seen with the price of Gold and bonds declining. The price of Gold over the past 2 days has been declining by 2.25%, taking the value back below $1,950.
Bitcoin
Bitcoin's price has formed an ascending triangle pattern over the past 2 days. As a result, the instrument forms a clear resistance level at $28,464 while the corrective waves are increasing higher each time. The resistance level has been hit on 3 occasions this week, which may weaken the level going forward, but only if momentum is maintained. The global cryptocurrency market capitalization has increased by more than 2.20% over the past 24 hours, and Bitcoin has managed to maintain its market share.
The price of Bitcoin will continue to be correlated with investors' confidence in the banking sector. If the Federal Government does indeed increase guaranteed funds, Bitcoin's price may even come under pressure. Over the past 2-weeks, the cryptocurrency market has become an alternative to the Dollar. However, investors should note that this does not necessarily mean a safe haven asset.
Summary:
- The US Dollar index during this morning’s Asian session is slightly lower, but some exchange rates are experiencing strong price movement against the Dollar.
- Large US banks express their readiness to support the market. As a result, US stocks increase in value.
- The Pound is currently experiencing the strongest climbs against all currencies. The price of the GBP/USD has increased by 0.45% since the inflation announcement this morning. UK inflation unexpectedly increases to 10.4%
- Currently, more than 60% of economists believe the committee’s 11 members will choose to hike interest rates by 0.25%.
- Bitcoin forms a clear resistance level at $28,464 while corrective waves increase.
