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Wednesday, March 22, 2023

What happened and what do the markets expect?

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In a week marked by the global financial crisis unleashed by the fall of American and European banks that hit the world stock markets, the dollar loses positions against other currencies, the market awaits news from the Federal Reserve after the European Central Bank set a new rate hike.

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At the local level, the The Central Bank increased the interest rate on Thursday after 6 months without modifications and took it to 78% per year, after knowing the inflation data for February, which stood at 6.6%.

He dollar The US loses positions as riskier currencies rise as worries of a global banking crisis subside after bank declines moderate.

He dollar indexwhich tracks this currency against a basket of six other major currencies, decreases 0.2% to 103,888, while the euro, pound and yen recover.

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This relief in the fall of the rest of the currencies responds to a greater calm on the international financial situation, particularly after the 11 US banks will inject $30 billion in deposits into First Republic Bankbacking the regional bank that had been caught in the collapse of two other smaller US banks last week, sparked by the fall of Silicon Valley Bank.

This move came after Credit Suisse announced on Thursday that would borrow up to $54 billion from the Swiss National Bank, thus ensuring that the embattled lender had sufficient liquidity to meet the massive withdrawals following a series of banking scandals.

Despite the global financial scenario, the European Central Bank, ratified the rate hike and announced on Thursday a new rate hike of 50 basis points to sustain its policy of fighting inflation through monetary contraction. The euro reacted higher after the announcement.

This further suggests that ECB monetary policy makers remain confident in the underlying strength of the eurozone banking sector. In her usual press conference, the president christine lagarde it walked the fine line between being tough on inflation and acknowledging the need for caution in the face of growing signs of risks to financial stability.

The Government of Japan is coordinating closely with the bank of japan and the financial authorities of other countries to avoid the consequences of the banking difficulties of several Western banks, Finance Minister Shunichi Suzuki said on Friday.

US economic data will focus on the reading of the consumer confidence index from the University of Michigan in March to be published this Friday, which will provide insights into how Americans are coping with the current economic difficulties.

This week, data was also released on applications for state unemployment assistancewhich rose less than expected, fueling the possibility of significant rate hikes in the face of a recovering labor market.

Attention will now turn to the Federal Reserve monetary policy meeting next weekas expectations grow that the US central bank may slow down its aggressive rate hike campaign in an attempt to ease stress on the financial sector.

Markets now price at almost 90% the possibility that the Fed will raise rates by 25 basis points next week.

Source: Ambito

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