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DXY was barely changed at 104.3 vs. Monday and slightly below Friday’s 104.4. Expectations remain for the March US PCE deflators to mirror the firmer CPI readings this Friday with an eye on an expected softening in next week’s nonfarm payrolls data. EUR/USD bounced off 1.08, the support level in the last two weeks of February. We noted the upside surprises in EU data vs. the downside surprises in US data. GBP/USD is holding above 1.26, its favourite support level since December. Although the hawkish dissent evaporated at its last meeting, the Bank of England is reluctant to signal early rate cuts. USD/CAD failed again to break above 1.36 in March. The Bank of Canada set the tone at its meeting on March 6 that it was too early to discuss rate cuts. USD/CHF rose 0.5% to 0.9040, closing above 0.90 for the first time since mid-November. Markets are convinced that the Swiss National Bank will follow up with another rate cut in June. USD/JPY kept to 151.50, fearing interventions near the 152 level. With the Bank of Japan seen going slow in normalizing monetary policy, the JPY’s recovery hinges on Fed cut expectations.
Markets see global central banks lowering interest rates in June. The odds are highest for the European Central Bank (83%) and Swiss National Bank (80%) vs. the US Federal Reserve (65%) and borderline for the Bank of Canada (50%) and the Bank of England (50%). Although central banks are more confident about the progress on inflation, they are reluctant to bring forward their guidance to lower rates in summer. Neither do they want to encourage markets from pricing in too many cuts like they did in November-December.
The US Treasury 10Y yield eased 1.4 bps to 4.232% after rising 4.7 bps to 4.245% on Monday. The US consumer confidence index did not increase in March to 107 and declined to 104.7 instead. February was revised to 104.8 from 106.7. Expectations fell to 73.8 from 76.3, but the present situation index increased to 151 from 147.6. US equities buckled in the final hours of trading on profit-taking before the end of the first quarter. The three major US stock indices had a spectacular rally to lifetime highs this year. Markets will eye the US monthly jobs report to kick off the second quarter. Fed Chair Jerome Powell’s speech on Friday may reiterate the Fed’s readiness to lower rates on more surprise increases in the unemployment rate. Consensus expects March’s jobless rate to stay unchanged after rising to 3.9% in February from 3.7% in the previous three months.
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