Interest rates

Markets have been rocked by the biggest banking crisis since the 2008 financial crash.

We agree with the market’s expectation that Jerome Powell and company are likely to deliver a 25bps interest rate hike this month, though we certainly wouldn’t be shocked to see the central bank hold fire for now.

How did SVB collapse and what does it mean for financial markets?

Fed Funds futures traders are pricing in a full 50bps of interest rate cuts by the end of the year!

While there seems to be a clear consensus that the central bank should slow its pace of rate hikes, the ultimate question for this week’s meeting will revolve around the so-called “terminal rate,” or how high the Fed will have to push interest rates next year before pausing the rate hike cycle.

Major central banks around the world have been hiking rates at an unprecedented pace in order to try and cap inflation, which in some countries is at or near 40-year highs.

A carry trade is a trading strategy that involves borrowing a low-yield currency and investing in a high-yielding asset to exploit the interest rate differential. Carry trades are most common in forex trading with traders borrowing the low interest Japanese yen to buy higher interest currencies. Learn what currency pairs work best and how to execute the strategy yourself in our full guide.

A total of at least 150bps of rate hikes by the end of the year is now the market’s base case as the Fed continues to scramble to catch up with rising prices.

Hawkish ECB speakers over the last few days, combined with the lack of BOE speakers, have sent EUR/GBP to its highest level since July 6th.

Interest rates are an important driver for forex markets so it’s important that traders understand the effects of hikes and cuts on currencies. Let’s look at how interest rates affect currencies and a popular forex interest rate trading strategy.

If markets see the Fed cutting back the pace of rate hikes, we may see 10-year yields lower, and as a result, housing data may pick up again.

On balance, the Fed chief is coming off as relatively dovish...

If the FOMC does, in fact, opt for a 75bps interest rate hike, Fed Chairman Powell’s accompanying press conference will likely have a bigger market impact than the decision itself...

If traders don’t have this scenario in their minds, they’re ignoring one of the biggest risk in markets right now...

The leading indicators point to a slightly below-expectations reading in this month’s NFP report, with headline job growth potentially coming in somewhere in the 225K-325K range

Comments from SNB’s president suggest the central bank might be closer to hiking rates sooner than some expect.

Traders should watch the change in expectations of interest rates vs current rates.