The relentless optimism surrounding the Dollar had to come to a halt at some point, and it appears markets may have finally found the pivot as USD dropped roughly half a percent on the Bloomberg Dollar Spot Index yesterday.
Overview
That trend continues this morning as the Buck is setting up to post its fifth daily retreat in a row, its longest slide since October. US data this morning came from initial and continuing jobless claims – initial claims were very close to expectations at 217,000, and continuing claims slid upward a bit more than expected.
Fed Chair Jerome Powell’s testimony before Congress continues today, and the absence of any new information in his appearance yesterday contributed to the Dollar’s decline. Powell could have been more hawkish on inflation but declined to make any sort of forceful statements and rather stated, ‘If the economy evolves broadly as expected, it will likely become appropriate to begin dialing back policy restraint at some point this year.’ The absence of new tonality was taken by markets as something akin to bad news – a bit of an overreaction for a one-day move, in our view, but nonetheless moving the needle for USD downward and potentially indicating a shift in trend for the month of March.
The European Central Bank also released its latest decision this morning, holding interest rates steady and reiterating that the fight against inflation is not yet finished, even as growth in the region continues to be a point of concern. Christine Lagarde would not commit to any sort of pace for future moves from the central bank but was not quite hawkish enough to keep the EUR afloat atop yesterday’s rather large move. The busy data calendar continues tomorrow morning, with non-farm payrolls coming out of the US and Eurozone GDP also due to be released.
What to Watch Today…
- Eurozone GDP, Friday
- US Nonfarm Payrolls, Friday 8:30 AM
- Monex USA Online is always open.
JPY ⇑
Japanese Yen continues to be one of the more interesting currencies to watch this year, gaining a whopping one percent against USD overnight. Speculation has continued to grow that the Bank of Japan may actually end its negative interest rate later this month on commentary from a few BoJ officials, supporting the Yen. While our base case is still that the BoJ will wait until the Fed cuts interest rates to change policy concretely, markets have repriced expectations so much that an interest rate hike in March is now more likely than not.
MXN ⇓
Mexican Peso, after an astonishing positive run in the last few days, is on the back foot this morning after inflation slowed in February to 4.4%, down from 4.88% in January, and bets are increasing that Banxico will begin a cycle of interest rate cuts at its March 21 meeting. Latin America’s second-largest economy is showing signs of a slowdown, as data released last week showed that Mexico’s economy grew at a relatively anemic pace in the fourth quarter of last year. In conjunction with expectations of slowing US growth, we expect MXN to lose some steam through the first half of this year.
