The week of March 17-21 is poised to be eventful for global markets. In the US, the Federal Reserve’s decision and economic data, including retail sales and housing starts, will be key for market sentiment. In Europe, the ECB’s policy stance and UK inflation figures will be in focus. Meanwhile, in Asia, the Bank of Japan’s meeting and economic reports from Australia and New Zealand, including employment data, will provide further insight into regional growth prospects. With key data and central bank decisions on the agenda, the week promises potential market-moving developments.
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Key Points To Watch Out For:
- The Fed decides its policy in a context of fear of recession.
- Yen traders are looking to the Bank of Japan for signs of a rise.
- The Swiss National Bank is expected to cut interest rates by another 25 basis points.
- The Bank of England will stand pat after February’s moderate cut.
Tariffs Continue to Dominate Investor Attention
The US dollar showed a mixed performance against major currencies last week amid uncertainty over President Trump’s tariff policies. On Tuesday last week, Trump unveiled a 50 percent tariff on steel and aluminum imports from Canada, only to reverse the decision after Ontario suspended a 25 percent surcharge on electricity sent to certain US states.
However, the 25 percent tariffs on steel and aluminum were applied last Wednesday, with both Canada and the EU retaliating on Thursday. There is still a risk of further escalation, including possible reciprocal tariffs and an increase in duties to 50 percent, with April 2 being a critical date.
This continued uncertainty has led to a drop in risk appetite, with Wall Street indices falling. The US dollar, in particular, has suffered as investors shift their focus from inflationary concerns to the broader impact of tariffs on economic growth. Investors are now pricing in 72 basis points of rate cuts from the Federal Reserve this year, up from the 50 basis points expected in December.
The Federal Reserve’s Next Decision: Eyes on the Dot Plot
This week’s Federal Open Market Committee (FOMC) meeting, which will take place on Wednesday, March 19, will attract considerable attention. In addition to the decision, the statement and the press conference, the Federal Reserve will publish updated economic projections, including the much-anticipated dot plot. With no immediate action expected until June, the focus will be on the dot plot.
If Federal Reserve Chairman Powell and the Committee show concern about the impact of tariffs on the economy, and if the dot plot reveals more aggressive rate cuts, the US dollar could continue its downward trend. Stocks, which have previously rallied on expectations of lower borrowing costs, could see further declines as fears of a possible recession grow.
Yen Bulls Await Signals from the Bank of Japan
This week, the Bank of Japan (BoJ) will also make its interest rate decision on Wednesday, March 19 during the Asian session. At its first meeting of the year, the BoJ raised rates by 25 basis points to 0.5 percent, and Governor Ueda hinted at further increases if the economic outlook holds.
Recent data show solid wage growth and accelerating consumer prices, which are now up 4.0 percent year-on-year, up from 3.6 percent in December. The Bank of Japan’s core CPI also rose to 2.2 percent year-on-year from 1.9 percent. Although Tokyo’s February data reported a slight slowdown, inflationary pressures remain well above the Bank of Japan’s target of 2 percent.
Given these factors, investors are discounting an 80 percent chance of another 25 basis point rate hike in July, and some estimate it as early as June. If the Bank of Japan maintains a tough stance, the yen, which has performed well this year, could strengthen even more.
Will the Swiss National Bank Opt for Another Rate Cut?
On Thursday, March 20, the Swiss National Bank (SNB) will hold its first monetary policy meeting of the year. In December, the SNB cut rates by 50 basis points to curb the strength of the Swiss franc. However, given the uncertainty surrounding Trump’s tariffs, the franc has strengthened again, while Swiss inflation fell in February to its lowest level in almost four years. This increases the possibility of another rate cut.
The markets consider there to be a 75 percent probability of a 25 basis point rate cut, and if the SNB gives signals of new measures, the Swiss franc could weaken. It is unlikely that the currency would experience significant volatility just because of a rate cut, unless the SNB demonstrates its willingness to make additional cuts.
BoE: Will They Be Aggressive or Moderate?
The Bank of England (BoE) is expected to keep rates on hold this week, following a 25 basis point cut in February. At that meeting, the BoE lowered its growth forecasts while raising its inflation forecast. However, two members surprisingly voted for a 50 basis point cut.
Since then, UK economic data has far exceeded expectations, and markets are now pricing in two further quarter-point rate cuts this year, the first of which is expected in June. However, if policymakers report concerns about ongoing tariffs and market volatility, the pound could fall as investors adjust their estimates for deeper cuts.
Conclusion
On Tuesday, March 18, Canada will publish its February CPI data, and on Friday, March 21 the January retail sales figures will be released. The Bank of Canada recently cut rates by 25 basis points, citing the threat of Trump’s tariffs on the Canadian economy. Weaker-than-expected data could serve to reinforce estimates regarding another rate cut in April.
In addition, New Zealand’s fourth quarter GDP report and Australia’s February employment data will be released on Thursday, March 20 in the Asian session, adding more market-moving events to watch this week.
