The GBP was the strongest of the major currencies today. The CHF was the weakest.

The strongest to the weakest of the major currencies

The GBPUSD which rose 0.83% today, saw steady buying in the European and US sessions after the Asian session that consolidated gains from Friday. The pair rose for the 3rd consecutive day. That move higher has seen the price move from a low of 1.2009 on Wednesday - just above natural support at 1.2000. The high price today reached 1.2284 today and is trading around 1.2273 going into the close.

The GBPCHF was the biggest mover today with a gain of 1.20%. It trended higher helped by selling in the CHF and buying in the GBP. The CHF is seeing flows out of its currency due to the banking concerns from Credit Suisse. Over the weekend a takeover by UBS was brokered by Swiss regulators, but hangover sentiment is still hurting the CHF. The USD is ending mostly lower, but with gains vs the CHF and a small gain vs the NZD.

GBPCHF closes above 200 day MA for 1st time since Jan2022

For the UK, they have skirted banking concerns so far. That is supportive. The BOE will meet this week on Thursday and although the chances of a 25 basis point hike has moved lower due to contagion bank fears, expectations for a hike by 25 basis points is still favored. Before that meeting, CPI will be released with YoY inflation expected to remain elevated at 9.9%. Inflation is supposed to fall to 6.6% in 2023 and 2.4% in 2024. Most economist are expecting that if the bank raises, it would be the last before a year or so of steady rates to see the impact of the move higher. The question is if the banking crisis blows over, can the BOE keep that discipline with inflation at 9.X%? or 8.X% or 7.X%?

It is hard to say, but the GBP is getting a push higher and technicals are improving with the GBPUSD above and moving away from its 100 day MA at 1.20577 and 200 day MA below at 1.1852. The GBPCHF is above its 100/200 day MAs as well.

In the US, the yields are higher as expectations for 25 basis point hike on Wednesday seem to be gathering momentum. Even still, the two year yield is trading below the 4% level at 3.92%. That's up 13.7 basis points. The 10 year yield is at 3.484% up 8.8 basis points. Last week the two year you will reach 5.085%, and the 10 year yield was as high as 4.09%.

In the US stock market today, the major indices moved higher led by the Dow Industrial Average. The NASDAQ index length but still managed a small gain by the close. It traded as low as -79.82 points before closing at +45.03 points.

  • Dow Industrial Average rose 382.60 points or 1.2%
  • S&P index was 34.91 points or 0.89%
  • NASDAQ index rose 45.03 points or 0.39%

The big event will be on Wednesday when the Federal Reserve meets and announces their interest rate decision at 2 PM ET. Moreover, the Fed will release their latest dot plot. The last estimate had the Fed terminal rate at 5.11% (5.0% to 5.25%). The expectations last week were for that target to go up toward 5.75%, but the markets now expect somewhere 5% to 5.25% once again.

The Fed will also announce their expectations for PCE headline and core inflation for 2023, 2024 and 2025, along with GDP and employment guesstimates.

Fed Chair Powell, who was hinting toward increasing the pace of hikes to 50 bps when he testified last Tuesday and Wednesday on Capitol Hill, will have to maneuver his comments given the new dynamics. How concerned is the Fed about inflation now? Will they still look to keep rates elevated for an extended period time?