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Yields nudged higher - Cautious ahead of FOMC

17 March 2021

The Treasury yield has lifted 1.2 bp to 1.63% as markets position for the FOMC announcement, which will take centre stage today. Markets are preparing for a less dovish tone against the background of a rapidly proceeding vaccination program and the prospect of a swift re-opening of the economy. In Europe the BoE is set to announce its policy decision tomorrow and while Governor Bailey is expected to offer some reassurance on policy, he seemed pretty sanguine on the trend higher in yields in comments from Monday. In the Eurozone meanwhile investors saw little evidence that the ECB has actually stepped up asset purchases in Monday’s data and seem to be testing the central bank’s resolve to keep spreads in.


Forex Market

Today: Today’s data calendar is pretty quiet, with only the final reading for Eurozone February inflation. The Fed concludes its meeting today and announces its decision and releases its quarterly forecasts at 18:00 GMT. 

FOMC preview

The meeting will be followed by Fed Chair Powell’s press conference at 14:30 ET. The focus will be on the new views on the recovery and of course policy as reflected in the SEP and dot plot. The statement should show an improved outlook on the economy, but a still cautious stance on the labor market. Look for reiteration that inflation continues to run below target. In his press conference Chair Powell will acknowledge the run up in prices but will again say it’s expected to be a transitory blip. We suspect he will try to discourage worries that the run up in yields will initiate the start to tapering sooner than later. Remember the Fed has indicated it will begin trimming QE before it begins boosting rates. So it could be a difficult dance if the dots show more rate hikes in 2022 than the 1 from December as the markets would quickly price in Fed action for later this year.



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