CNH: USD/CNH Holding Above 7.3100, CNY Basket Remains In Sharp Downtrend
USD/CNH is holding above 7.3100 at this stage, close to session highs of 7.3173. We are around 0.30% weaker in CNH terms, while spot USD/CNY has pushed back above 7.3000 so far today. We continue to see meaningful divergence broader USD index trends. The BBDXY index is up from earlier lows though (from sub 1230, to be back near 1232).
- The USD/CNY fixing pushing up to multi year highs above 7.2100 suggests further gradual depreciation pressures in the yuan. The chart below shows the fixing and broader USD BBDXY breakdown.
- The authorities are likely to remain comfortable with further CNY basket weakness, as lower levels will help ease financial conditions. We had trade figures earlier, which showed higher than expected export growth, but significant uncertainties remain over the overlook given higher US tariff levels.
- CNH/JPY is up slightly from recent lows, last near 19.56, on Friday the pair dipped to 19.43. EUR/CNH was near 8.3200 in latest dealings, with recent highs near the 8.4000 level.
- China is likely to watch how Japan negotiations on trade unfold. Currency discussions may also feature, which has been hinted at by Japan officials.
- There still appears some distance between the US and China sides though. Market sentiment was buoyed by the late Friday news around tariff exemptions for key electronic products, but US President Trump said the whole electronics sector would still be subject to national security tariff related probe.
Fig 1: USD/CNY Fixing & USD BBDXY
Source: MNI - Market News/Bloomberg
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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
