The FP Markets research team produce First Light News around the European open, ensuring traders and investors have the news needed to begin their day.

Good morning.

It was quite a day in the markets on Wednesday. The US Federal Reserve (Fed) increased the Fed Funds target range by 25 basis points to a range of 4.50% to 4.75%. This was an anticipated move and was priced into the market, hence post-event volatility was reasonably subdued. The 0.25 percentage point hike signifies a slowdown in what has been one of the most aggressive policy tightening regimes in 40 years.

The statement noted that ‘ongoing increases’ in the Fed Funds Rate are likely, suggesting that the central bank may continue to raise in 25 basis-point increments going forward.

In terms of the US Fed Chair Powell’s Presser (markets witnessed increased volatility at this point), the main points were:

There is still work to be done—more rate hikes.

Inflation remains too high (let’s remember this is three times the central bank’s target).

More evidence is required for weaker inflation.

The economy is slowing but the labour market remains tight.

With inflation data continuing to ease—the peak forged in June 2022 at 9.10%—cooling housing, energy costs falling and rates in restrictive territory now, desks are beginning to price in the possibility that the Fed will press the pause button soon. According to the CME’s FedWatch Tool, the current target rate probabilities for 22 March meeting favour another 25 basis-point increase, though there is a 17.3% chance the Fed will halt rate hikes.

The US dollar was on the ropes yesterday, erasing nearly 1.0%, according to the US Dollar Index. This has thrown the index below major technical support on the monthly timeframe. Consequently, EUR/USD, GBP/USD and AUD/USD benefitted, rallying 1.17%, 1.13% and 0.44%, respectively.

Following a brief risk-off phase, risk assets caught a strong bid. Major US equity indices pared early downside and largely concluded the session in positive territory; the Dow Jones Industrial Average ended flat, the S&P 500 added 1.05% and the Nasdaq 100 climbed 2.16%. It was also largely a positive session across the S&P 500 Sectors. Technology led the way, adding 2.35%, trailed by consumer discretionary (+1.90%); the only laggard of the session was the energy sector, shedding 1.97%.

Overnight, Asia-Pac equity indexes finished higher across the board; the Nikkei 225 added 0.20%, South Korea’s KOSPI advanced 0.70% and Australia’s ASX 200 rose 0.13%.

Markets Today

European markets delivered a risk-on vibe in early trading. The Dax, the Euro Stoxx 50 and the CAC currently lead major European indices, up 0.60%, followed by the UK’s FTSE 100 at 0.30%.

The day ahead greets rate decisions from the Bank of England (BoE) as well as the European Central Bank (ECB), both of which are widely anticipated to pull rates higher by 50 basis points.

Tier-1 Economic Data in Focus:

Bank of England (BoE) Interest Rate Decision at 12:00 pm GMT (Expected to Raise by 50bps).

European Central Bank (ECB) Interest Rate Decision at 1:15 pm GMT (Expected to Raise by 50bps).

Currency Markets as of 8:20 am GMT:

EUR/USD: $1.1004 +0.13%

GBP/USD: $1.2382 -0.03%

AUD/USD: $0.7146 +0.16%

USD/JPY: ¥128.64 -0.23%

NZD/USD: $0.6527 +0.36%

USD/CAD: C$1.3283 -0.06%

USD/CHF CHF0.9074 -0.06%