The greenback has been hit by the reignition of the rate cut theme in recent days. This was also boosted by today's non-farm payrolls report, which pointed to a less robust labour market than initially portrayed by the strong headline print. Big revisions, both positive last month and negative in February, highlight the erratic nature of the data and how we should look at a range of measures. Those, like leading indicators such as ISM survey data, are weakening and point to rate cuts, though probably not in a few weeks’ time or the May FOMC meeting.
Risk markets and gold have reacted to falling yields with all-time highs, while the USD has fallen to near-two month lows. Gold’s record, parabolic run has astounded, with prices set for a correction after printing at $2,185. A key risk will be the US CPI report which could show a still-solid monthly core print, which strips out volatile food and energy costs. That might cause more yo-yoing in market rate cut bets, causing a bid in the dollar. The FOMC are now in blackout mode so we will not hear from officials until their meeting next week when we also get updated economic projections and a fresh dot plot. Chair Powell reiterated last week that the Fed will be patient and cautious on policy changes, with the disinflation process ongoing.
One currency making waves and clawing back losses on the year is the Japanese yen. Still the worst performing G10 major in 2024, there has been much speculation that the Bank of Japan will tighten policy at its meeting next week. Crucial to this will be the wage negotiations with the Rengo Trade Union on Friday, which could set the stage for a 10bp hike. We note the mixed comments from various officials in recent week. But USD/JPY hasn’t blinked and has collapsed, with yen bulls eyeing up the 200-day simple moving average at 146.15.
The UK sees some important data on Tuesday in the form of wage growth figures which are set to continue cooling, though remain elevated. These numbers, along with next week’s services inflation data, are key inputs into the Bank of England’s decision making process. The Spring Budget didn’t materially alter the MPC calculation on rate cut timing, but it does underpin support for GBP as it could make the bank more hawkish at the margin. GBP is the major outperformer this year versus the dollar and April seasonality along with too hot wage and inflation data might continue to help the pound. Recent consensus upgrades to UK growth have also helped cable to multi-month highs which could be prone to a retracement soon.
Here are the key risk events for the week ahead:
