USD starting to get some limited traction as US rates stabilize - BBH
Research Team at BBH points out that the dollar is starting to get some limited traction as US rates stabilize.
Key Quotes
“The US 2-year yield is hovering just below 1.30%, while the spread to Germany has moved back above 200 bp after a brief period below. Yesterday, Rosengren (non-voter in 2017) made a case for four hikes this year, which echoed Williams’ case for three hikes or more this year.”
“During the North American session, the US reports another revision to Q4 GDP and weekly jobless claims. The Fed’s Mester (non-voter in 2017), Kaplan (voter), Williams (non-voter), and Dudley (voter) speak today. We would expect today’s Fed comments to line up with the more hawkish take presented yesterday.”
“German state and national CPI readings for March will be reported. Consensus sees a slight easing in the national y/y rate to 0.4% from 0.6% in February. Eurozone CPI will be reported Friday, with consensus for headline CPI at 1.8% y/y vs. 2.0% in February. If so, this would push back against notions that the ECB is nearing an end to its easy money policy.”
“Indeed, ECB officials did just that yesterday. Reuters story quoted several unidentified officials as saying the March statement was over-interpreted by the markets, and that the ECB isn’t about to end its extraordinary policies to support the economy. The next policy meeting is April 27, and we’d expect Draghi to assert a more dovish (less hawkish?) stance then.”
“The dollar has clawed back about half of its post-FOMC losses against the euro. A break of the $1.0720 area is needed to set up a test of the March 15 low near $1.06. The yen has held up better, with dollar/yen recouping only about a quarter of its post-FOMC losses.”
“Sterling is trading heavily after the expected Article 50 trigger yesterday. Leaders from the EU and the UK won’t actually meet on Brexit until April 29. Continued uncertainty is typically not good for a currency, and so we see downside risks ahead for sterling.”