FX.co ★ High volatility in the markets will continue until the Fed's March meeting

There are two important topics still on the market – geopolitical conflict around Ukraine and the upcoming Fed rate hike at the March meeting.

The Biden administration is hoping for the military conflict in Ukraine to solve its narrowly political internal problems. This topic is also actively present in the media, which, although it does not have a sensitive impact on the dynamics of company shares, fully stimulates the growth of energy prices. A more influential topic is the expectation of rising interest rates in the US.

According to the minutes of the Fed's last meeting, the regulator will raise rates, but probably not as aggressively as it seems to many on the market. In fact, the presented document showed that one should not expect an overly aggressive increase in the cost of borrowing, which means that the market may be mistaken that rates will be immediately raised by 0.50% next month, and not the previously assumed 0.25%. That is why, after the publication of the minutes of the meeting, US indices reduced losses.

Among the important data presented on Wednesday, the UK's consumer inflation should be mentioned. The local consumer price index rose to 5.5% against 5.4% in annual terms. In January, it slightly plunged less than expected – by 0.1% against 0.2%. The base, annual value of inflation, also increased to 4.4% against 4.2%. As expected, the pound reacted to this news with an increase in the rate on the currency market, but its growth against the US dollar turned out to be limited by the level of 1.3600. The main limiting factor in the currency markets is still the topic of the upcoming Fed rate hike at the March meeting. Time will tell how realistic the rates will be raised, but if they are raised by only 0.25%, and not by the 0.50% as the markets expected, then a pullback in the stock markets and a local depreciation of the US dollar may occur.

Today, the market will follow the publication of data on the number of applications for unemployment benefits in the US, which are expected to decline to 219,000 from 223,000 a week earlier. In addition, the figures for the number of building permits and a package of statistics from the University of Philadelphia will be released.

Assessing the overall picture of the market, we believe that high volatility will continue until the Fed's March meeting.

Forecast for the day:

Spot gold is receiving support again amid high volatility in the markets and many external negative factors. If the tension persists, the price will most likely continue to rise towards the level of 1900.00 after breaking through the strong resistance level of 1878.00

The USD/JPY pair is declining amid geopolitical tensions. It remains in the range of 115.00-116.35 for now, but if sentiment does not improve and prices fall below the bottom of the range, we should expect it to further decline to 114.30.