The European Central Bank meeting on April 11 presented a potential “buy the rumour, sell the event” scenario for the EUR. EUR/USD tested 1.07 amid speculation that the ECB might lower interest rates ahead of the Fed. While a few governing council members favoured a cut yesterday, the majority opted to wait until June, seeking more information to confirm that inflation was on track to the 2% target in a sustained and timely manner. Until the next ECB staff projection in June, ECB President Christine Lagarde adhered to the current assessment for inflation to average 2.3% in 2024 before declining to target in 2025. In line with our expectations, the ECB statement did not pre-commit to a particular rate path.
DXY was little changed at 105.28 on Thursday despite a brief spike to 105.53. New York Fed President John Williams’ comments suggested that markets might have overreacted to the sticky US CPI inflation. Williams reminded markets that the Fed’s preferred inflation gauge was the PCE deflator, which was well off its 40-year peak of 7.1% YoY in June 2022 to 2.5% in February. Williams believed the Fed could start lowering interest rates in 2024 despite his expectation for PCE inflation to fluctuate around 2.25-2.50% this year before moving closer to the 2% target in 2025. He also observed that inflation expectations had reverted to the Covid lows. The 1Y inflation expectations gauges by the New York Fed and the University of Michigan had fallen to late 2020 levels. Today. San Francisco Fed President Mary Daly will likely concur with Williams that there was no urgency to adjust policy at the upcoming FOMC meeting on May 1. Daly was probably among the ten out of 19 members who voted for three cuts this year.
In line with our expectations, the Monetary Authority of Singapore did not adjust any of the three parameters of its SGD NEER policy band. MAS maintained the forecast for CPI-All Items inflation and its core inflation to average 2.5-3.5% in 2024, excluding the impact of the GST increase to 1.5-2.5%. Mirroring the trend in many countries, MAS reckoned core inflation will stay elevated earlier in the year. However, it maintained the stance for core inflation to moderate and step down in 4Q24 before falling further in 2025. Meanwhile, advanced GDP growth rose to 2.7% YoY in 1Q24 from 2.2% in 4Q23 but decelerated to 0.1% QoQ sa from 1.2%. MAS anticipated that the Singapore economy would strengthen over 2024, with growth becoming more broad-based, supported by an upturn in the electronics cycle and an anticipated easing in global interest rates. The Ministry of Trade and Industry maintained its forecast for the economy to expand by 1-3% in 2024. We maintain our forecast for the central bank to slightly reduce the slope of the SGD NEER policy band at the July meeting.
Quote of the day
"Patience is bitter, but its fruit is sweet.”
Jean-Jacques Rousseau
12 April in history
The Union Jack was adopted as the national flag of Great Britain in 1606.
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