Fed’s Anna Paulson Signals Rate Cuts May Come Later as Inflation Cools and Labor Market Stabilizes 
Gold Prices Fall Amid Rate Jitters; Copper Steady as China Stimulus Eyed 
BOJ Governor Signals Further Rate Hikes as Japan’s Economy and Inflation Stay on Track 
FxWirePro: Daily Commodity Tracker - 21st March, 2022 
Bank of Korea Expected to Hold Interest Rates as Weak Won Limits Policy Easing 
Thailand Economy Faces Competitiveness Challenges as Strong Baht and U.S. Tariffs Pressure Exports 
Hong Kong Cuts Base Rate as HKMA Follows U.S. Federal Reserve Move 
ECB Signals Steady Interest Rates as Fed Risks Loom Over Outlook 
South Korea Vows Action to Stabilize Won as Currency Weakens Despite Strong Fundamentals 
Over the past two weeks, market expectations of Fed normalization have rebounded somewhat. Much of this has got to do with the market interpreting the October FOMC outcome to be more hawkish than anticipated. Sensitivity to changing expectations is more apparent for end-2016 and end-2017 as compared to the end-2015. Notably, the implied Fed funds rate for end-2015 barely bounced by 3bps from the low in October to 0.2%. Comparatively, the adjustments for end-2016 and end-2017 were larger at 20bps and 26bps respectively.
While these implied rates are still well down from levels seen in mid-September, the market seems to be warming up to the possibility of Fed normalization over the medium term even if liftoff does not take place this year. Meanwhile, longer-term USD rates also rose amid an improvement in risk sentiment. Part of this has also got to do with an increase in oil prices over the past week.
On balance, we think USD rates are biased higher over the medium term as Fed normalization occurs. However, we remain cognizant that this is a binary affair. Global growth risks lurk with market rates still pricing in a fair chance of stagnation.
