The DXY Index is not deviating from 106 and is eyeing last October’s high of 107.3. The Fed has entered a blackout period this week before next week’s FOMC meeting on May 1. This week’s US data will likely affirm the Fed’s patience to lower interest rates due to sticky inflation and a resilient economy in the US. On April 25, economists polled by Bloomberg expect US advanced GDP growth to slow to 2.5% QoQ saar in 1Q24 from 3.4% in 4Q24. On April 26, consensus sees the PCE deflators, both headline and core, increasing by 0.3% MoM for a second month in March, mirroring the surprises in the CPI data. Hence, the Fed will likely, at the June FOMC meeting, roll back the three cuts it forecasted for this year. In March, nine of the 19 Fed officials voted for two or fewer cuts in the Summary of Economic Projections. Despite its strong bias, the greenback will face countervailing pressures from the European Central Bank pushing back rate cut expectations beyond the one anticipated in June and intervention risks in USD/JPY near 155. 
EUR/GBP has the potential to keep appreciating to 0.8650-0.8700 after its best weekly surge since late December. Last week, EUR/GBP appreciated 0.8% to 0.8614, its highest close since the start of 2024. The currency pair has not been able to depreciate below 0.85 ever since the Fed paused its hiking cycle in late July 2023. The OIS market will likely increase the odds from 40% last week to more than 50% for the Bank of England to join the ECB in lowering rates in June before the Fed. BOE Deputy Governor Dave Ramsden noted that UK CPI inflation was below its US counterpart and converging with the EU. Consensus sees CPI inflation dropping slightly below its 2% target in 2Q24 and 3Q24, taking BOE Governor Andrew Bailey’s comments seriously about a sharp drop in inflation.
USD/JPY did not deviate far below 155 last week despite a brief flight to safety to 153.6 on Israel’s restrained response to Iran’s earlier missile attack. During their first trilateral meeting last week, the finance ministers of the US, Japan, and South Korea issued a joint statement acknowledging the potential for disorderly and excessive depreciation in the JPY and KRW from the USD’s strength. Japan’s vice finance for international affairs, Masato Kanda, did not rule out any options if appropriate actions were needed to address excessive JPY volatility. Hence, the Bank of Japan meeting on April 26 will be significant. We cannot rule out BOJ Governor Kazuo Ueda adopting a hawkish tone or hinting at another rate hike later this year. More so now that the BOJ did not see any disruption from the end of its negative interest rate policy and yield curve control framework in March.
Quote of the day
"The money you make is a symbol of the value you create.”
Idowu Koyenikan
22 April in history
During the US Civil War in 1864, the US Congress approved legislation authorizing “In God We Trust” to be printed on the two-cent coin.
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