FOREX: USD Bear Cycle Continues
Broad USD weakness over the course of last week as a rotation out of US assets seems to be gathering momentum. The BBDXY is down -0.18% in Asia today. The European Union is racing to clinch trade deals with countries around the globe in an effort to diversify away from an increasingly protectionist US.
- EUR/USD - Asian range 1.1318 - 1.1409, dipped initially on the early Monday open but has since traded bid to go into the London open around 1.1375. EUR/USD had been trading very closely with the 10 year rate differential, this relationship broke down completely last week. The market will be watching to see if this continues this week.
- GBP/USD - Asian range 1.3064 - 1.3128, trading just off the day's highs going into the London session.
- USD/CNH - Asian range 7.2786 - 7.3173, the USD/CNY fix was another higher one at 7.2110, this has seen USD/CNH bounce strongly from the 7.2800 area. USD/CNH goes into the London open near the session highs.
- USD/JPY - Asian range 142.25 - 144.06, was under pressure from the open once again. Falling back to last week's lows around 142.00 into the Japanese fix. It seems any paring back of positions done on Friday going into the weekend have quickly been re-established. Huge support level around 140, a break here could see the move accelerate.
- Cross asset : SP +1.02%, Gold 3230.00, US 10yr 4.46%, BBDXY 1232, Crude oil 61.20.
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FED: March Economic Projections: Higher Inflation, Weaker Growth, Same Rates
The MNI Markets Team’s expectations for the updated Economic Projections in the March SEP are below.
- The unemployment rate is likely to rise slightly for 2025 alongside a downgrade in GDP growth, while the 2025 core and headline PCE inflation projections are set to rise again. Changes to later years will likely be limited, however.
- More detail on the shift in Fed funds rate medians is in our meeting preview - we will add more color next week.
FED: Market Pricing Nearly 3 2025 Cuts As Conditions Tighten
Amid rising government policy uncertainty, sentiment among businesses and consumers has fallen sharply since the start of the year, while equities and the dollar have reversed their post-election rise. Overall, financial conditions have tightened, even if stress is not yet mounting, e.g. no major widening of credit spreads (the accompanying chart shows the Fed’s financial conditions impulse index but only through January).
- Combined with growth fears, this has affected expectations for the Fed’s rate path, with around 18bp more cuts expected in 2025 compared with what was seen after the January FOMC. 65bp of cuts are priced for the year as a whole. 2025 cut pricing reached 71bp before the February inflation data and 76bp before the February payrolls report.
- A rate cut is seen with near zero probability for March’s meeting, but the first full cut is just about priced for June, with a second nearly priced by September.
- Chair Powell has no reason to endorse or refute these expectations – he’s likely to be happy with a press conference that ends with little discernable change in pricing.
CANADA'S CARNEY ANNOUNCES ELIMINATION OF THE CONSUMER CARBON TAX
- CANADA'S CARNEY ANNOUNCES ELIMINATION OF THE CONSUMER CARBON TAX
