FX Daily: DXY near the floor of a price channel
US data to determine if DXY moves above or below 104.
Group Research - Econs, Philip Wee22 Feb 2024
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DXY depreciated by 0.1% but did not stray far from 104, near the floor of a price channel. The US Treasury 10Y yield rose 4.3 bps to 4.32% after holding around 4.28% in the past three sessions. The yield remains capped by the 100-day moving average. Per the FOMC Minutes for the 30-31 January meeting, most Fed officials agreed that the policy rate likely peaked for this tightening cycle but cautioned against lowering rates too quickly. Fed Governor Michelle Bowman said the time for a rate cut was “certainly not now”, echoing Fed Chair Jerome Powell’s view that such a move at the FOMC meeting at the 20 March meeting was not the base scenario. Powell will likely refer to the FOMC minutes during his semi-annual congressional testimonies on 6 March.

The minutes shed light on what would increase the Fed’s confidence about PCE core inflation moving down sustainably to the 2% target. Fed staff sees core inflation reaching 2% in 2026, a forecast with risks tilted slightly to the upside. The economic forecast prepared by the staff for the January meeting was stronger than the December projection. Officials noted the momentum in aggregate demand may be more robust than currently assessed from surprisingly resilient consumer spending last year. On the other hand, a couple of members pointed to downside risks to the economy from keeping monetary policy overly restrictive for too long. Overall, the committee agreed to pay attention to a wide range of information, including labour market conditions, inflation pressures and inflation expectations, and financial and international developments in assessing the appropriate stance of monetary policy.

The incoming data will be important in shaping the Fed’s Summary Economic Projections at the March FOMC meeting. Next week’s PCE deflators (29 February release) should mirror last week’s CPI inflation surprises. Consensus expects the PCE deflator to increase to 0.3% MoM in January from 0.2% in December and PCE core inflation to double to 0.4% from 0.2%. The Conference Board’s consumer confidence index (27 February release), which hit its highest level since December 2021, will also be important. Suppose today’s initial jobless claims rise a fourth week. It will increase the conviction of consensus for nonfarm payrolls (8 March release) to retreat to 150k in February from a 12-month high of 353k in January.

Quote of the day
"The presidency has many problems, but boredom is the least of them.”
     Richard Nixon

22 February in history
In 2013, Moody’s downgraded UK’s AAA credit rating to Aa1.


Philip Wee

Senior FX Strategist - G3 & Asia
[email protected]


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