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Safe Havens Benefit on Hopes That This Is the Last Hike From the FED

Markets were extremely concerned with central banks as they kept raising interest rates and the economic data took particular importance in this environment, especially inflation and growth. But, the last two weeks have been hectic, as the banking crisis has engulfed the financial sector.

SVB faced a crisis, prompting US regulators to take control of the California-based lender. The bank’s collapse caused panic in financial markets, which affected weaker financial institutions already struggling with the unintended consequences of high interest rates and self-inflicted wounds. Another US regional bank, Signature Bank, was also closed down while First Republic Bank (FRC) was propped up to prevent its collapse. Credit Suisse, a Swiss bank of global financial significance, was at risk of failing before it was taken over by UBS. This marks the first major threat to a bank of such significance since 2008.

So, the path for the Federal Reserve which is expected to announce a rate hike on Wednesday is not as clear cut as it was two weeks ago. Traders are divided on if this will be a 25 bps hike or whether they will stop. The bond market implies a 65% probability for a 0.25% rate hike, which will raise FED’s policy rate to 5%. However, some traders have lowered the odds of a hike, with Goldman Sachs and Barclays revised their rate predictions to no hike at all this time.

So, there may be some volatility before Wednesday’s announcement if Credit Suisse and First Republic continue to struggle. The FED has been tightening rates for the past year, and some experts suggest that they should suspend rate rises altogether due to inflation and a tight US job market. Technical futures traders should keep an eye on the price action and chart of S&P 500 futures and consider the directional forecast. Gold on the other hand, has been benefiting immensely form this and will remain bullish if the uncertainty continues, together with the JPY.

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Skerdian Meta
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Skerdian Meta Lead Analyst. Skerdian is a professional Forex trader and a market analyst. He has been actively engaged in market analysis for the past 11 years. Before becoming our head analyst, Skerdian served as a trader and market analyst in Saxo Bank's local branch, Aksioner. Skerdian specialized in experimenting with developing models and hands-on trading. Skerdian has a masters degree in finance and investment.
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