FX Daily: No clear sign that DXY will keep falling or EUR and NZD will keep rising
USD hopeful on PCE deflator, EUR wary of CPI estimate, and RBNZ meeting may disappoint NZD.
Group Research - Econs, Philip Wee26 Feb 2024
Article image
Photo credit: Unsplash/Adobe Stock Photo
Read More

The DXY Index retreated to 104 last week after failing to break above 105 on 13-14 February. The Fed has successfully pushed back the market’s aggressive rate cut bets for 2024. As of last Friday, interest rate futures discounted 3-4 cuts this year, fewer than the 7 reductions in December. They also see the Fed delivering its first cut in June instead of March.

However, last Thursday, DXY bounced off 103.4, the floor of a price channel. Fed officials are determined that the market does not deviate from the 3 cuts projected in December’s dot plot. They have also rallied around Fed Chair Jerome Powell’s guidance that a rate cut was not the base scenario at the next FOMC meeting on 20 March. At his semi-annual congressional testimonies on 6-7 March, Powell will likely warn that excessive easing amid a resilient US economy could lead to a stalling or reversal in the progress achieved so far to restore price stability. On 29 February, look for the PCE deflators to mirror the surprises in CPI. Consensus sees headline inflation rising to 0.3% MoM in January from 0.2% in December and core inflation to 0.4% from 0.2%. With initial jobless claims declining a third week to 201k for the 17 February week, those looking for nonfarm payrolls (on 8 March) to fall below 200k in February may be disappointed again.

EUR/USD rose into a higher 1.08-1.09 range last week vs. 1.07-1.08 the previous fortnight.  This week, a fall in the Eurozone’s CPI inflation will not lead the European Central Bank to lower rates at next week’s governing council meeting. Today, ECB President Christine Lagarde will tell the EU Parliament that the spring wage negotiations need to affirm the sustainability of disinflation for an interest rate cut this summer. However, EUR/USD could slip below 1.08 again. Interest rate futures see the ECB lowering rates by the same 75-100 bps as the Fed this year. The risks could tilt in the USD’s favour if the CPI estimate on 1 March affirms the ECB’s expectation to reach the 2% target by summer or autumn. Consensus expects headline inflation to slow to 2.5% YoY in February from 2.8% in January and core inflation to 2.9% from 3.3%.

NZD/USD’s rise to 0.62 last week is as tenuous as the fragile New Zealand economy. With inflation expectations above the 1-3% target, we expect inflation the Reserve Bank of New Zealand to keep rates unchanged at 5.50% on 28 February. However, interest rate futures have gotten ahead of themselves in their mild bets for a hike at the April or May meetings. After contracting QoQ sa in three of the four quarters through 3Q23, real GDP looks weak in 4Q23. Apart from retail sales ex inflation contracting by a deeper 1.9% QoQ sa in 4Q23 vs. the 0.8% decline in 3Q23, the jobless rate increased to 4% in 4Q23 for the first time since 2Q21. Despite its concern about high rates weighing on the economy, the Treasury Department hinted at spending cuts in the May budget announcement.

Quote of the day
"There is no such uncertainty as a sure thing.”
     Robert Burns

26 February in history
The Bank of England issued the first £1 note in 1797.


Philip Wee

Senior FX Strategist - G3 & Asia
[email protected]


Subscribe here to receive our economics & macro strategy materials.
To unsubscribe, please click here.


GENERAL DISCLOSURE/ DISCLAIMER (For Macroeconomics, Currencies, Interest Rates)

The information herein is published by DBS Bank Ltd and/or DBS Bank (Hong Kong) Limited (each and/or collectively, the “Company”). This report is intended for “Accredited Investors” and “Institutional Investors” (defined under the Financial Advisers Act and Securities and Futures Act of Singapore, and their subsidiary legislation), as well as “Professional Investors” (defined under the Securities and Futures Ordinance of Hong Kong) only. It is based on information obtained from sources believed to be reliable, but the Company does not make any representation or warranty, express or implied, as to its accuracy, completeness, timeliness or correctness for any particular purpose. Opinions expressed are subject to change without notice. This research is prepared for general circulation.  Any recommendation contained herein does not have regard to the specific investment objectives, financial situation and the particular needs of any specific addressee. The information herein is published for the information of addressees only and is not to be taken in substitution for the exercise of judgement by addressees, who should obtain separate legal or financial advice. The Company, or any of its related companies or any individuals connected with the group accepts no liability for any direct, special, indirect, consequential, incidental damages or any other loss or damages of any kind arising from any use of the information herein (including any error, omission or misstatement herein, negligent or otherwise) or further communication thereof, even if the Company or any other person has been advised of the possibility thereof. The information herein is not to be construed as an offer or a solicitation of an offer to buy or sell any securities, futures, options or other financial instruments or to provide any investment advice or services. The Company and its associates, their directors, officers and/or employees may have positions or other interests in, and may effect transactions in securities mentioned herein and may also perform or seek to perform broking, investment banking and other banking or financial services for these companies.  The information herein is not directed to, or intended for distribution to or use by, any person or entity that is a citizen or resident of or located in any locality, state, country, or other jurisdiction (including but not limited to citizens or residents of the United States of America) where such distribution, publication, availability or use would be contrary to law or regulation.  The information is not an offer to sell or the solicitation of an offer to buy any security in any jurisdiction (including but not limited to the United States of America) where such an offer or solicitation would be contrary to law or regulation.

This report is distributed in Singapore by DBS Bank Ltd (Company Regn. No. 196800306E) which is Exempt Financial Advisers as defined in the Financial Advisers Act and regulated by the Monetary Authority of Singapore. DBS Bank Ltd may distribute reports produced by its respective foreign entities, affiliates or other foreign research houses pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Singapore recipients should contact DBS Bank Ltd at 65-6878-8888 for matters arising from, or in connection with the report.

DBS Bank Ltd., 12 Marina Boulevard, Marina Bay Financial Centre Tower 3, Singapore 018982. Tel: 65-6878-8888. Company Registration No. 196800306E. 

DBS Bank Ltd., Hong Kong Branch, a company incorporated in Singapore with limited liability.  18th Floor, The Center, 99 Queen’s Road Central, Central, Hong Kong SAR.

DBS Bank (Hong Kong) Limited, a company incorporated in Hong Kong with limited liability.  13th Floor One Island East, 18 Westlands Road, Quarry Bay, Hong Kong SAR

Virtual currencies are highly speculative digital "virtual commodities", and are not currencies. It is not a financial product approved by the Taiwan Financial Supervisory Commission, and the safeguards of the existing investor protection regime does not apply.  The prices of virtual currencies may fluctuate greatly, and the investment risk is high. Before engaging in such transactions, the investor should carefully assess the risks, and seek its own independent advice.