Fed funds futures are repricing the Fed significantly

Fed funds futures have rallied that shows that traders see a 33% chance that the Federal Reserve holds rates this month while the market pricing shows rate cuts are expected as early as June.

The reverberations SVB’s collapse in the US has hit global financial markets significantly.  A new Bank Term Funding Program will offer loans from the Federal Reserve of up to one year to depository institutions, backed by United States Treasuries and other assets these institutions hold. Consequently,  the US Dollar index, or DXY, which measures the greenback vs. a basket of major currencies, has dropped heavily benefitting the Yen. DXY has printed a fresh low of 103.484, tracking the fall in short-dated Treasury yields. The two-year note was paying as low as 3.997% at one point in New York trade early doors on Monday. The US yield dropped hard from the week´s highs of 4.534% in the biggest one-day drop since the financial crisis of 2008, on track for its biggest three-day decline since the Black Monday crash of 1987.

Amid this financial uncertainty, US February Consumer Price Index data will be out tonight and the consensus is for core CPI to slow just 0.1ppt to 5.5% YoY, analysts at ANZ Bank noted, saying, ´´that would indicate progress in bringing inflation back to target is proving very slow.´´

´´Combined with a hot February Nonfarm Payrolls print, and we retain our forecast for a 25bp FFR hike next week (and a peak of 5.5% in June). Financial stability risks are front of mind for markets, but it’s important to note that bringing inflation back to target is fundamental to securing economic and financial stability,´´ the analysts argued. 

US Dollar update

The H4 charts, above, see the price meeting current old support that could see supply come in from within the Fibonacci scale´s 38.2% retracement near 103.80.