Let’s see if markets end this week in the same direction they started. Despite the constructive sentiment towards the USD, the DXY Index depreciated by 0.2% to 104.3, marking the first decline in four weeks. Last Friday, DXY spiked to 104.7 from 104.2 on a surprise surge in US nonfarm payrolls to 303K in March; consensus had expected a decline to 214k from 270k (revised from 270k) in February. However, the DXY spent the rest of the session returning to 104.3, ignoring the US Treasury 10Y yield rise to 4.40%, its highest level in late November. After bottoming at 100.6 in late December, DXY consolidated this year in a 102-105 range.
The greenback dismissed Fed Governor Michelle Bowman’s remark about the Fed’s willingness to hike if the progress on inflation stalled. However, interest rate futures did not entirely remove the expectations for a Fed cut in June; the odds were reduced to 48.8% last Friday from 60.4% a day earlier. While Bowman saw upside risks to inflation from the strong payrolls, her baseline remains for inflation to fall amid warning of a deteriorating US economy altering the view for rate cuts. Although the unemployment rate fell to 3.8% in March from 3.9% in February, average hourly wage growth slowed to 4.1% YoY, its slowest since June 2021. On April 10, consensus sees US CPI and core inflation moderating to 0.3% MoM in March from 0.4% in February. On the same day, the FOMC Minutes will be a reminder that the Fed is keeping its projection for three rate cuts this year.
The DXY’s struggle to rise could also be attributed to the EUR’s resilience, its most significant component. EUR/USD failed to push below 1.08 at the start of April on a lower-than-expected CPI inflation fueling bets for the European Central Bank to lower rates before the Fed. EUR appreciated 0.4% to 1.0840 last week after three weeks of selling. With the EU CPI inflation easing a fourth month to 2.4% YoY in March from 2.9% in December, the ECB should lay the ground for a June rate cut at this Thursday’s governing council meeting. Beyond that, ECB President Christine Lagarde has communicated her unwillingness to commit to more cuts. Lagarde will likely sound more hopeful of this year’s economic growth prospects after last year’s stagnation. Today, consensus sees the Sentix Index, a gauge of investor confidence, improving a sixth month to minus 8 in April from minus 11.4 in March.
It is yet to be determined if USD/CAD can push sustainably above 1.36 at tomorrow’s Bank of Canada meeting. Since March, the currency pair has returned briefly below 1.35 after failing to hold above 1.36. Although Canada’s CPI inflation fell to 2.8% YoY in February, core inflation was 3.2%, above the midpoint of the 1-3% target. While Canada shed 2.2k jobs in March, it added an average 25.3k jobs in 1Q24 vs. 18.4k in 4Q23. The market sees the BOC lowering rates later in September instead of June, a week earlier.
USD/SGD traded mainly in a 1.3450-1.3550 range in the past fortnight. On April 12, we expect the Monetary Authority of Singapore to keep the three parameters of the SGD NEER policy band unchanged. Singapore’s CPI inflation increased by 1% MoM in February after a 0.7% decline in January. In YoY terms, headline inflation rose to 3.4% from 2.9%, while core inflation increased to 3.6% from 3.1%, near the top of the official forecast of 2.5-3.5%. On the same day, consensus expects Singapore’s advanced GDP to halve to 0.6% QoQ sa in 1Q24 from 1.2% in the previous quarter but rising to 3.1% YoY from 2.2% on base effects.
Quote of the day
"Magic and new technology have always walked hand in hand – even back in the days of Robert Houdin.”
David Copperfield
8 April in history
In 1983, David Copperfield made the Statue of Liberty disappear In front of a live audience of 20 tourists.
Topic
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