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All eyes on the Fed meeting on Wednesday

Home >  Daily Market Digest >  All eyes on the Fed meeting on Wednesday

Written by:
Myrsini Giannouli

16 March 2022
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How the war in Ukraine affects markets

War continues raging in Ukraine, with heavy casualties including civilians and children. Millions of refugees are fleeing Ukraine, creating an additional issue for the EU, which has vowed to accept all refugees entering its borders from Ukraine.

On Friday, reports of diplomatic negotiations between Russia and Ukraine raised hopes of a de-escalation of the crisis. Diplomatic talks between Russia and Ukraine were resumed this week, sparking hopes for a resolution of the conflict, although Russian attacks continue.

Major sanctions against Russia

The US, the EU, and their allies have blocked several Russian banks from access to the SWIFT banking system and have imposed restrictions on Russia’s Central Bank. These measures aim to cut off Russian banks from the international financing system and undermine the Russian Central Bank’s ability to support the collapsing Rouble. 

US President Joe Biden announced last week that the US would be banning all oil and gas imports from Russia. The announcement of US oil sanctions sent oil prices skyrocketing to over $130 per barrel last Tuesday. The US, however, is not highly dependent on Russian oil, importing only a small percentage of its crude oil from Russia. The UK has similarly vowed to phase out its dependency on Russian oil and major British oil companies are already boycotting Russian oil.

The EU has not yet imposed direct bans on Russian oil and gas imports, even after being pressured to do so by western allies. The EU relies heavily on Russian energy-related imports, with almost 30% of the crude oil, 47% of its coal, and over 40% percent of its gas imports coming from Russia. The EU is trying to scale back its dependency on Russian imports and has imposed new sanctions on Russian oligarchs and has further excluded certain banks from Russia’s ally, Belarus, from the SWIFT system.  

Impact of Ukraine crisis on currencies, commodities

The ECB, the Fed, and other major Central Banks are already trying to strike a balance between soaring inflation rates and economic woes since the onset of the pandemic, and the war in Ukraine is complicating matters further. Sanctions against Russia are driving the price of key commodities up, especially energy-related commodities, further increasing inflation.

Global commodity prices continued to surge last week over Russia supply fears, posting their biggest weekly advance on record since 1960. Energy-related commodities especially, such as oil and natural gas, reached record prices. European natural gas prices surged to an all-time high last week, with the European benchmark Dutch front-month gas touching 345 euro per megawatt-hour, while global oil prices spiked to over $130 per barrel. 

Other commodities, such as wheat and metals reached record highs last week, driving inflation up. Russia and Ukraine account for about 29% of global wheat exports, 19% of corn exports, and 80% of sunflower oil exports, and the prices of these commodities are soaring. Aluminum hit a record high of $3,450 per ton on the London Metal Exchange and three-month nickel jumped to a record high above $100,000 a metric ton, with the London Metal Exchange suspending temporarily its trade. Gold jumped above $2,050 per ounce last week, its highest price since the peak of the pandemic in August 2020. The price of other metals, such as copper, palladium, and platinum also spiked during the week. 

Stock markets have been plummeting amid a rapid increase in the price of commodities and concerns about further military escalations. Fears that sanctions against Russia would have a severe impact on the global economy have been pushing markets down. The Rouble has plummeted to historic lows, while the Russian Stock Exchange remains closed. On Sunday, the Russian finance minister stated that Russia would make its sovereign debt payments in roubles rather than dollars. With a $117mn debt payment coming up on Wednesday, this might lead to the nation’s first default since 1998, since Russia’s bond contracts do not have the option of payment in roubles.

Important Calendar Events

  • EUR: German 10-y Bond Auction
  • USD: Monthly Retail Sales, Core Monthly Retail Sales, FOMC Economic Projections, FOMC Statement, Federal Funds Rate, FOMC Press Conference
  • JPY: Trade Balance, Monthly Revised Industrial Production


The dollar index remained mostly close to the 99 levels on Tuesday, dropping a little since Friday when it had climbed to almost 100, boosted by the war in Ukraine and expectations of a Fed rate hike. The dollar is considered a safe-haven currency and rises when a risk-aversion sentiment prevails, as investors turn towards safer assets. As diplomatic negotiations between Russia and Ukraine were resumed this week, the dollar retreated a little.

Treasury yields rose across the US treasury chest this week, in expectations that the Fed would tighten its monetary policy in its next meeting later in the week. The 10-year US Treasury yield especially, rose above 2.1% on Tuesday, its highest level since 2019. 

US Monthly PPI and Monthly Core PPI data were released on Tuesday, which are important indicators of consumer inflation and showed that producer prices in the US rose 10% over the past year. This indicator provides a measure of input costs faced by producers, which will eventually reach consumers, and is considered an early indicator of rising inflation. Indicators of inflation are expected to play a major part in the Fed’s monetary policy meeting on Wednesday and may influence the Fed’s benchmark interest rate. Severe sanctions against Russia have been sending the price of key commodities up, and inflation in the US is soaring. CPI data released last week showed that inflation rates in the US continue to rise, reaching 7.9% in February, which is the fastest annual increase in 40 years. 

The highly-anticipated Fed meeting is scheduled for Wednesday, and its outcome is expected to affect the dollar considerably. The US Federal Reserve is expected to raise its benchmark interest rate by at least 25 base points on Wednesday, while some analysts predict a sharp interest raise of 50 base points. A series of Fed rate hikes have already been priced in by markets for this year, driving the dollar up over the past few weeks. If the Fed decides on a conservative rate hike of 25 bp points, it might seem less hawkish than expected and could drive the dollar down. A more hawkish policy and a higher rate hike could see the dollar climbing even further, although this scenario seems less likely.



The Euro gained strength against the dollar early on Tuesday but retreated later in the day, with EUR/USD dropping to the 1.093 level. If the currency pair goes up, it may encounter resistance at 1.148 and further up at 1.169, while if it declines, support may be found at the 1.063 level. 

Several financial indicators were released on Tuesday for the Eurozone, including French Final CPI, ZEW Economic Sentiment, German ZEW Economic Sentiment. Overall, the data released on Tuesday were mixed for the economic health of the Eurozone and the ZEW indicators especially were lower than expected. 

Europe’s finance ministers attended the ECOFIN Meetings on Tuesday and agreed to end the quantitative easing measures that have boosted EU economies during the pandemic. The council confirmed the ECB’s announcements last week to move towards a tighter fiscal policy. Last week, the European Central Bank announced its decision to wind down its bond-purchasing program sooner than expected, placing the end of the bond-buying program at the third quarter of 2022, if financial conditions in the Eurozone allow it. The ECB is trying to avert a dangerous economic effect known as stagflation, the mix of economic stagnation and high inflation rates. 

On Tuesday, ECB President Christine Lagarde delivered a speech at the WELT Economic Summit in Berlin, commenting on the financial situation in the EU. Lagarde’s speech was optimistic, stating that the ECB expects robust economic growth in 2022 and that Inflation is expected to decrease progressively and reach the ECB’s 2% target in 2024. The ECB also announced last week that it does not plan to raise its benchmark interest rate before the end of its bond-buying program in the third quarter of 2022. Many market analysts predict that the ECB will raise its interest rate by at least 30 base points in Q4 of 2022, although so far, the ECB has been reluctant to move towards a rate hike. As the Fed and the BOE are expected to raise their benchmark interest rates again this week, the Euro remains at a disadvantage from the difference in interest rates.

The EUR/USD rate is expected to be driven primarily by the outcome of the US Fed meeting on Wednesday, as well as by geopolitical developments.

EURUSD 1hr chart



The sterling gained strength early on Tuesday, after UK employment data were positive, showing an improvement in the jobs sector, returning to pre-pandemic levels. Later in the day, however, the pound weakened, with the GBP/USD rate trading around the 1.30 level.

The GBP/USD rate has been following a downtrend for the past month and is currently at its lowest level in more than two years. If the GBP/USD rate goes up again, there may be resistance at the 1.364 level, while if it declines, further support may be found near the 1.284 level. 

The sterling has been under pressure since the war between Russia and Ukraine broke out and investors turned towards safer assets. Rising commodity prices and soaring inflation rates in the UK are competing against an economy that is still sluggish in the wake of the pandemic. The Bank of England has already signaled a shift to a more hawkish policy and a return to pre-pandemic interest rates this year in an attempt to tackle inflation.

The Official BOE interest rate is going to be announced this week on Thursday, March 17th, just a day after the Fed’s interest rate announcement. The Bank of England is expected to raise its benchmark interest rate on Thursday by at least 25 base points, after already performing two consecutive rate hikes in its previous meetings. Markets have already priced in approximately six BOE rate hikes this year, but a steeper rate hike is considered a possibility and would give the pound a boost.   

The GBP/USD rate is expected to be driven primarily by the outcome of the US Fed meeting on Wednesday, as well as by geopolitical developments.

GBPUSD 1hr chart



USD/JPY exhibited low volatility on Tuesday, trading close to the 118.3 level. The Yen has been declining against the dollar these past few weeks, with the USD/JPY rate climbing to its highest rate in six years. If the USD/JPY pair continues to climb, it may find resistance near the 118.5 level, while if it declines, support might be found at 114.8 and further down at 113.4.

The Yen is considered a safe-haven currency and most safe-haven assets were boosted considerably since the war in Ukraine broke out. The Yen, however, has not picked up pace as much as other safe-haven assets, as the BOJ’s fiscal policy is keeping the Yen down. Low inflation rates in Japan and a weakening economy are steering the BOJ towards maintaining its dovish monetary policy. Inflation in Japan is far below the BOJ’s 2% goal, although as prices of imported goods and energy continue to increase, inflation may rise, while overall economic health declines. 

The Bank of Japan is holding its monetary policy meeting this week, on March 18th. The BOJ’s meeting is going to follow the Fed and BOE meetings, in which the two major Central Banks are expected to raise their benchmark interest rates. The BOJ however, seems set to maintain its ultra-accommodating monetary policy, and a rate hike is not expected. 

The difference in interest rates with other major Central Banks, especially with the Fed and the BOE puts the Yen at a disadvantage. Coming right after the Fed’s and the BOE’s meetings, which are shifting towards a more hawkish policy, the BOJ’s dovish stance might drive the Yen further down.

Financial indicators scheduled to be released on Wednesday for the Yen include Trade Balance and Monthly Revised Industrial Production and may cause some volatility in the currency. All eyes however are going to be on the US FOMC meeting on Wednesday and its outcome is expected to affect most currency rates.

USDJPY 1hr chart


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Written by:
Myrsini Giannouli

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