The low-volatility trend of late continues this morning as the United States Dollar is slipping slightly against most major currencies.
Overview
Yesterday’s CPI release from the US failed to provide the fuel to kickstart any large market movements, and the Bloomberg Dollar Spot Index has settled back this morning to close to where it was early yesterday morning. The Buck largely remains range-bound amidst a sparse data calendar for the remainder of this week.
As the Federal Reserve is in its media blackout period leading up to next week’s meeting and interest rate decision, we won’t get any clues from officials ahead of time as to how yesterday’s CPI numbers may change the calculus on a timeline for pivoting toward cuts this year. Markets have been looking to industry leaders like Jamie Dimon for their thoughts on the matter, and they’re leaning more toward a cautionary stance from the Fed – that the central bank would do well not to slam on the proverbial brakes quite yet and approach any pivot toward cutting interest rates should be done incrementally. Especially given yesterday’s inflation reading for February, these words are ringing true across markets. The battle against inflation is not quite finished, and at the same time, some cracks are beginning to show in the US labor picture, which calls into question just how realistic it is to achieve a soft (or even no) landing.
All told we’ll be looking at the Fed’s move (or lack thereof) next week for signs of acknowledgment of these difficulties to see what sort of a timeline they may be on. Markets still believe that the Fed may cut interest rates at least three times this year, with the possibility of a fourth, but it’s quite possible that Powell pours proverbial cold water on those expectations.
What to Watch Today…
EUR ⇑
The single currency, after sliding a bit through yesterday’s session, is regaining a small amount of ground today to start the morning closer to Monday’s levels. Today, the European Central Bank unveiled a new framework for the implementation of monetary policy on the heels of last week’s policy hold, giving lenders a bit more say on how much cash they need to keep on hand to operate day-to-day business. Of note is a narrowing spread between the deposit rate and the main refinancing rate, going down to 15 basis points from the current 50, which could provide some tightening even as the chance of a cut from the ECB grows.
AUD ⇑
The Australian Dollar, though still relatively muted as all currency moves are today, is gaining a small amount of ground against USD this morning ahead of a speech by Treasurer Jim Chalmers on the possibility that Australia could have a second consecutive year with a budget surplus. Delivering a pre-budget address today, Chalmers is expected to address falling iron ore prices and their impact on the nation’s budget, with the chance that Australia may retain a surplus yet again.
