The U.S. Dollar is losing some ground this morning after having a rally yesterday following signs that inflationary pressures will certainly return in 2024.
Overview
While Q4 disinflation made it seem like the Fed had won the battle against aggressive price growth and could start cutting into interest rates, evidence from the last three months has shown an expanding economy with increased costs for both suppliers and consumers. Although there are pockets of weakness domestically, ongoing prices make it hard for Fed officials to conduct expansionary policy. The Dollar responded by improving to its strongest level since February 13.
Additionally, equities have been sliding, reaching their lowest point since that Valentine’s Day period. Investors are wondering about the potential for resurgence in other regions. At the time of writing, the USD was losing ground based on optimism and confidence exuded by European Central Bank President Christine Lagarde.
In her press conference, she explained that June will ring more evidence for considering cutting rates but that officials feel there is an upside to the economy that may not require the monetary policy stimulus. If things in Europe start truly looking on the rise, the ECB could afford to delay cuts as the Fed has. Currently, the central policy divergence that has propelled the Buck cannot be ignored. Odds of a cut by the Fed in June stand at 21.0%, while the ECB has an 83.0% chance. The thing is, growth might be the focus going forward, and the Buck is not improving today based on the idea that others are stimulating, seeking to foment that growth in their respective economies.
What to Watch Today…
- UK GDP, Friday
- Monex USA Online is always open.
EUR ⇑
The Euro rose this morning following the ECB’s decision to keep rates unchanged and set course for stimulus going forward. While chances of the ECB reducing borrowing costs increased, Lagarde spoke about not jumping on looser policy decisions until more data presents a clearer picture. She was questioned plenty about what to do, considering inflation in the U.S. is high, but Lagarde was adamant about the ECB acting independently of whatever concerns the Fed may have. It was perceived as a confident take on the question while establishing that her decisions are going to be made based on European needs and not global ones. Questions came about the chances for dollar-euro parity, which she also defused as she explained no official has the gal to depreciate the shared currency..
CAD ⇑
Our neighbors up North also had a central bank meeting yesterday, in which rates were left unchanged, and “hawkish” explanations left the “Loonie” buoyant. While a June interest rate cut was not ruled out, BOC Governor Tiff Macklem sounded very similar to Lagarde in wanting to wait for more evidence before committing to act. More importantly, the BOC upgraded its economic growth forecast to 1.5% for 2024, when only 0.8% had been suggested in Q1. As far as inflation goes, officials were satisfied but concerned with outside forces impacting energy costs in the long term. Domestically, Canada will start cutting down on immigration, while surveys show the population wants the government to exercise fiscal restraints as they believe they spend too much. Volatility is back a bit for CAD with a not-so-certain future.
