The latest Market Talks covering FX and Fixed Income. Published exclusively on Dow Jones Newswires throughout the day.

0817 GMT - The dollar rises and has the potential to gain further ahead of Wednesday's Federal Reserve policy decision as investors conclude that a 25 basis-point rate rise is more likely than rates being left steady, ING currency analyst Francesco Pesole says in a note. "We wouldn't be surprised to see the dollar--which fell yesterday as risk sentiment rebounded--find some support into the FOMC announcement as markets turn more defensive and potentially factor in a greater risk of a hawkish scenario." The Fed decision will be "a big risk event," with markets currently only pricing in around a 60% chance of a rate increase, he says. The DXY dollar index rises 0.1% to 103.407. (jessica.fleetham@wsj.com)

0810 GMT - Central banks will want to push ahead with policy tightening plans, according to Mizuho's analysts who expect a differentiation between price targets and financial stability goals. The U.S. Federal Reserve will confirm decisions on Wednesday, followed by the Bank of England on Thursday. "We expect them to make a strong differentiation between their price and financial stability goals, in line with [European Central Bank President Christine] Lagarde and the ECB," Mizuho rates strategist Evelyne Gomez-Liechti and head of research Helen Rodriguez say in a note. "Keeping financial conditions tight likely continues to be a priority; the rate cuts priced for early H2-23, in the case of the Fed, look too extreme to us," they say. (emese.bartha@wsj.com)

0800 GMT - Malaysia near-term's external demand may face pressure as global macroeconomic uncertainties weigh, especially the recent banking crisis, say Affin Hwang Investment Bank economist Alan Tan Chew Leong and team in a note. They cite still-high inflation, which may lead to tighter global financial conditions in the short term, and the prolonged Russia-Ukraine war as external downside risks. Malaysia's overall trade performance is projected to deteriorate in coming months as a result of a slowdown in global semiconductor sales, they add. Affin Hwang maintains Malaysia's 2023 real GDP growth estimate at 3.7%, compared with 8.7% last year. The bank projects real exports growth to slow to 3.5% from 12.8% in 2022, and real imports growth at 4.4% this year, compared with 14.2% last year. (yingxian.wong@wsj.com)

0755 GMT - Eurozone government bond yields fall, signalling continuing investor caution in light of the banking turmoil, DZ Bank says in a note. Nonetheless, the relatively muted yield drops point to tentative stabilization, the bank's analyst Christian Reicherter says. "Regarding bond-market sentiment, nerves are still jangling on both sides of the Atlantic in response to the uncertainties racking the banking sector," he says. "Yet market actors appear cautiously optimistic that the current bout of turmoil is not going to escalate into a global financial crisis." The 10-year German Bund yield is trading about 1 basis point lower at 2.103%, while drops in yields of equivalent bonds of eurozone states are slightly bigger, according to Tradeweb. (emese.bartha@wsj.com)

0725 GMT - The U.S. Federal Reserve is expected to raise interest rates by 25 basis points at this week's meeting, but the decision and outlook for any tightening depend on financial stability, Bank of America's analysts say in a note. "Recent economic momentum and inflation have been overshadowed by banking system risks, sharply repricing the Fed's path," they say. Bank of America's analysts stick to their view on monetary policy outlook, including a terminal target range--the level at which the Fed will stop raising rates--of 5.25-5.5%, and a mild recession in the U.S. beginning from the third quarter of 2023, they say. "We now see a greater risk of Fed tightening and balance sheet reduction ending sooner," they say, adding that they saw risks that both would last longer previously. (emese.bartha@wsj.com)

0717 GMT - The premium on Germany's 1.30% October 2027 green Bobl versus its conventional twin is driven by scarcity and broader interest in environment-focused investors, Commerzbank's analysts say in a note. "The decent greenium [green premium] of around 7.5bp is probably just as much attributable to relative scarcity given the relatively small-sized issues as it is to genuine green interest," Commerzbank's rates strategists Michael Leister and Hauke Siemssen say in a note. The German Finance Agency will auction EUR1.5 billion in the October 2027 green Bobl, with auction results due at 1030 GMT. (emese.bartha@wsj.com)

0709 GMT - Despite tensions on the financial markets stemming from the collapse of Silicon Valley Bank, economist expectations point to another 25 basis point interest-rate rise by the Federal Reserve on Wednesday, Andrea Conti, head of Eurizon's macro research and product specialist team, says in a note. The market is more sceptical, however, he says, with views divided between an interest-rate rise and a decision to keep the Fed funds rate unchanged, he says. "The spotlight will also be on the updated projections for Fed funds rates (dot plot) and on [Fed Chair] Jerome Powell's press conference, to garner elements [of] information on the future path of interest rates," Conti says. (emese.bartha@wsj.com)

0709 GMT - USD/SGD edges higher in the afternoon Asian session as Treasury yields rise ahead of the FOMC two-day meeting that begins later today, boosting the appeal of U.S. fixed-income assets and leading to USD demand. While a 25bp rate increase is a done deal, the key is on the summary of the economic projections, say Maybank analysts in a FX Research & Strategy report. If the peak rate stays at 5.0%-5.5% for 2023, there's potential for the greenback to weaken further, the analysts say. However, a slightly higher peak rate together with an upward revision in the inflation forecast could cause some USD strength, the analysts add. USD/SGD is up 0.1% at 1.3390. (ronnie.harui@wsj.com)

0707 GMT - Risk sentiment is improving after Monday's shaky start following UBS's takeover of Credit Suisse, and "financial stability is now set against underlying inflation problems," SEB's analysts say in a note. The market is awaiting the Federal Reserve's rate decision on Wednesday, where the market is now pricing in an around 30% probability that the Fed will leave interest rates unchanged, the analysts say. However, sharing the majority view, they expect an interest rate rise. "The responsibility at the Fed is now lead-heavy for further development: while a lower price of money may partially relieve financial stress, an overly soft message can create concern that the Fed knows something the rest of us have no idea about, which risks making matters worse." (emese.bartha@wsj.com)

0606 GMT - South Korea's possible inclusion in the FTSE World Government Bond Index later this month could trigger $60 billion of passive index-tracking capital inflows, say Barclays analysts Ashish Agrawal and Audrey Ong in a note. The country has likely met requirements needed to be included in the global index in its ongoing review, due to be completed by March 30, by improving its capital-market structure and easing rules to enhance foreign accessibility to local money markets, the analysts note. They expect the weighting of South Korean treasury bonds in the WGBI could rise to as much as 2.4% following the inclusion. (kwanwoo.jun@wsj.com)

0533 GMT - Traders might have begun to unwind HKD carry trades against the USD ahead of this week's FOMC meeting, Ken Cheung, chief Asian FX strategist at Mizuho Bank, says in an email. With the Fed likely to alter its rate trajectory to balance the risks of inflation and financial instability, unwinding of long USD/short HKD carry trades are probably underway, Cheung says. A carry-trade strategy typically involves borrowing in a low-interest-rate currency and investing in a high-interest-rate currency to take advantage of differences in interest rates. USD/HKD is little changed at 7.8402 after earlier touching 7.8355, its lowest intraday level since Feb. 21, according to FactSet. (ronnie.harui@wsj.com)

(END) Dow Jones Newswires

March 21, 2023 04:17 ET (08:17 GMT)

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