DXY appreciated 0.14% to 106.36, holding above 106 for the third session. The IMF World Economic Report now forecasts US GDP growth accelerating to 2.7% in 2024 from 2.5% in 2023, in stark contrast to last October’s projected slowdown to 1.5% from 2.1%. More importantly, the new US growth forecast is significantly superior to those projected for the Euro Area, Japan, the United Kingdom, and Canada. By contributing most to the upgrade in world GDP growth this year, the US economy is maintaining its exceptional performance and keeping the USD strong against the JPY, EUR, GBP, CAD, and Emerging Asian currencies this year. Against this background, the currencies at risk are those looking to cut rates before the Fed. 
The US Treasury 2Y and 10Y yields firmed by 7 bps each to 4.99% and 4.67% in the overnight session. Fed Chair Jerome Powell acknowledged that the Fed lacked the confidence to lower rates anytime soon based on the recent strength in US labour market and inflation data. Powell signalled that the Fed could keep interest rates restrictive at the current level for “as long as needed” to return inflation to the 2% target. The Fed will enter a blackout period next week before the FOMC meeting on May 1. Interest rate futures see a 43% chance of a delayed first cut in September and 48% odds for a second reduction in December. Following Powell’s comment, the odds have increased for the Fed to dial down the three rate cuts for 2024 in the June Summary of Economic Projections. In June, expect more than nine of the 19 Fed officials who wanted two or fewer cuts in March. 
In the short term, currencies stabilized somewhat after the panic selling on Monday and Tuesday due to fears of a broader conflict in the Middle East. US stock market futures are looking for a positive open today after the Dow Jones Industrial Average closed higher for the first time in seven sessions. Investors will pay close attention to oil prices and how Israel will retaliate against the unprecedented drone and missile attack from Iranian soil. The IMF estimated that a sustained increase in oil prices by about 15% would lift global inflation by about 0.7%. The Israeli war cabinet has put off a third meeting until today amid efforts by the US and allies to avert a major escalation. US Treasury Secretary Janet Yellen indicated further sanctions against Iran in the coming days. The Israeli Foreign Ministry pledged to lead a diplomatic attack by writing to 32 countries, asking them to place sanctions on Iran’s missile programme. The geopolitical situation remains fluid, keeping markets on the edge.
Quote of the day
"Given the strength of the labour market and progress on inflation so far, it is appropriate to allow restrictive policy further time to work and let the data and evolving outlook guide us.”
Fed Chair Jerome Powell, 16 April 2024
17 April in history
The funeral of Prince Philip, Duke of Edinburgh, took place at St George's Chapel, Windsor Castle in 2021.
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