First Light News: Fed Day in focus as Middle East conflict clouds the outlook

Good morning,

Geopolitics and oil
The Middle East conflict shows no signs of abating in its third week, with Iran renewing retaliatory strikes, which kept oil prices bid yesterday. In a development that briefly lifted risk sentiment, Israel reported the killing of Iran’s top security official. However, markets remained wary as Iran rebuffed de-escalation messages from intermediaries, signalling no immediate path to a ceasefire.

This morning brings some relief on the energy front. An agreement between Iraq and Kurdish authorities to resume oil exports through the Ceyhan port in Turkey has weighed on oil prices this morning. WTI is down nearly 4% to US$92.50/barrel, while Brent is lower by 2% and just north of US$100 – a level that may attract buyers if retested.

Commodities and FX
Elsewhere, spot gold and silver continued to offer very little movement yesterday. Bids and offers remain even as traders battle haven-demand flows and hawkish central-bank expectations; gold continues to test the resolve of US$5,000, while US$80 remains supportive for silver.

In FX, the USD continued to unwind longs ahead of today’s Fed decision. The buck recently clocked a high of 100.54 – the highest level since May last year – and has been largely trending higher since late January off lows of 95.55. As you would expect, the EUR also continued to find bids. Earlier this morning, the Research Team noted that the EUR/USD rebounded at an ‘alternate’ daily AB=CD bullish formation at US$1.1422 (1.618% Fibonacci projection ratio), which is complemented by several additional ratios. Traders could now target the 38.2% and 61.8% Fibonacci retracements derived from legs A-D at US$1.1667 and US$1.1824, respectively.

Equities
Across stocks, major US benchmarks rebounded moderately on Tuesday, with the S&P 500 adding 17 points (0.3%) to 6,716, the Nasdaq 100 up 125 points (0.5%) to 24,780, and the Dow Jones gained 46 points (0.1%) to 46,993. Most companies ended the day in the green in the S&P 500, with 314 positive, 185 negative, and 4 unchanged. You can also see this in sector performance: gains were led by energy, consumer discretionary, and technology. It is also interesting to see what is happening in BTC right now, finding some independent momentum and closing in on US$60,000 as crypto shows tentative signs of decoupling from equity moves.

The BoC will announce its rate decision at 1:45 pm GMT today. Investors expect the central bank to keep the policy rate on hold at 2.25% – the lower boundary of the BoC’s estimated neutral range.

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Publication date:

18 March 2026 - 11:40 (GMT)

BoC: Likely a non-event

The economic backdrop heading into the event shows a deteriorating labour market; you may recall that last week’s February print revealed that employment growth fell by nearly 85,000, marking the largest monthly drop since early 2022, while the unemployment rate ticked higher to 6.7% from 6.5% in January. This pushed back tightening expectations to 25 bps by year-end.

Headline YY CPI inflation eased to 1.8% from 2.3% in January, and both CPI median and trim measures also cooled by more than forecast. Nevertheless, as I noted in a previous post, this was largely because of base effects – the temporary sales tax dropped out of the annual comparison, which should weigh on March’s print as well. However, it is worth noting that this could already be stale in light of rising energy prices.

Ultimately, a hold decision is fully priced in, so I do not expect this to move the market’s needle. The focus will be on how BoC Governor Tiff Macklem frames rising energy prices and softening labour market conditions. A dovish outlook, one where he emphasises downside risks to jobs and growth could weigh on the CAD, potentially forcing the USD/CAD north of the CA$1.3753 high (3 March). On the other hand, should Macklem stress inflationary risks from the recent oil spike, this could completely price out any remaining easing hopes and bolster rate-hike expectations.

Fed: Dot plot is what matters
For the Fed (6:00 pm), like the BoC, a hold is all but a done deal, and the market’s response will largely hinge on the updated SEP and Fed Chairman Jerome Powell’s tone at his press conference.

The base case is for the dot plot to remain largely unchanged from December’s projections – that is, 3.4% for this year, 3.1% for 2027, and a hold for 2028. The tail risk to watch, of course, is a shift higher; it only takes three members to alter the 2026 projections to 3.6%, thereby removing this year’s rate cut. This alone would trigger a front-end Treasury sell-off and a rally in the USD. Analysts also anticipate that inflation will be revised upwards and growth downwards.

Governors Waller and Miran are expected to dissent in favour of a 25-bp rate cut today, with Governor Bowman possibly joining the dovish camp.

To sum up, the hold decision is not in question; the focus is on the dot plot and updated economic forecasts:
- Hawkish (USD positive): Median dot plot shifts to 3.6% – suggesting no rate cuts this year – and inflation revised higher.
- Dovish (USD negative): If the Fed cuts its GDP forecasts and Powell emphasises downside risks to employment, the market may interpret that as dovish even with a hawkish inflation forecast.
- Neutral (base case): Dots continue to suggest one rate cut, and Powell refers to the oil price shock as temporary (transitory).

Written by FP Markets Chief Market Analyst Aaron Hill