The Federal Reserve released their meeting minutes for March yesterday evening, paving the way for USD strength with comments in the report seemingly teeing up a 50 bps hike on their May 4th meeting with markets now pricing this in at 85%. (Up from 82% before the release) Markets are also looking further ahead for 50 bps hikes in the coming months after May if inflationary pressures remain elevated. With higher commodity prices since the Ukraine war along with increased potential for worsening supply chains off the back of the Shanghai lockdown, concerns are rising that inflation isn’t slowing down anytime soon. There was also a general agreement about reducing the asset holdings which have ballooned during the Covid-19 pandemic. The speed and aggression in which The Fed Reserve are aiming to move at, (Starting from May) had initially given The USD a boost after the release.
Shanghai extending its lockdown to combat rising Covid cases is bringing concern to major importers around the world. Initially, the east and west of Shanghai had different restrictions in place but with cases haven risen to more than 13k a day, the whole city has now been plunged back into lockdown without a clear end date in sight.
Later this afternoon The ECB release the minutes from their last meeting are unlikely to be as aggressive as The Fed Reserve’s with The EU struggling to cope with slumping growth in the wake of the Ukraine War. Eurozone inflation has soared to a record high of 7.5% and with no signs of this slowing, the adverse impact will potentially bring growth rates into negative territory.