Strong Inflation Jumpstarts Dollar

US inflation once again beat expectations, causing markets to further discount the chances of an easing cycle starting in June. The dollar responded with a 1% rise against a basket of major currencies, taking the DXY back to 104.80. The dollar recorded two peaks near these levels in February and late March, and it has not traded steadily higher since November.

Is There a Possibility of No Fed Rate Cuts This Year?

Ever since the Fed signalled it was done hiking rates in November last year, the focus swiftly turned to rate cuts, with the timing and scope of policy easing consuming investors’ attention. Subsequently, markets have been abuzz with rate cut speculation all year and that theme looks set to dominate for some time yet as the timing keeps getting pushed back.

Fed Minutes Continue to Indicate Rate Cuts Expected in 2024, But Uncertainty Looms

The Fed minutes continue to be a focal point of financial markets with investors trying to get a better sense of the path for interest rates. Today's minutes reinforced the Fed's data dependent approach to reducing its policy rate stating, "they did not expect it would be appropriate to reduce the target range for the federal funds rate until they had gained greater confidence that inflation was moving sustainably toward 2 percent".

ECB Meets Today But the Decision Itself (Status Quo) Won't Be Surprising

The ECB meets today but the decision itself (status quo) won’t be surprising. The difficult part lies in the press conference afterwards. Weak (but gradually recovering) economic & credit (e.g. Tuesday’s BLS) indicators and ongoing disinflation back the case for a June rate cut.

What's Behind the US Economy's Resilience?

One of the most striking developments over the past year has been the extraordinary resilience of the US economy, despite the highest interest rates in a generation. The United States grew 2.5% last year, much faster than any other advanced economy, and by all indications continues to outperform in early 2024. 

European Central Bank On Course For June Easing

The European Central Bank held monetary policy steady at today's announcement, though we view the accompanying statement as laying the groundwork for a probable ECB rate cut in June. The ECB cited an easing in underlying inflation and moderating wage growth. In addition, the ECB's announcement and ECB President Lagarde suggested that so long as updated forecasts confirmed the improving inflation outlook, monetary policy easing would be appropriate at the June 6 meeting.

ECB Review: The Direction is Clear

Today, the ECB decided to leave policy rates unchanged as unanimously expected. A rate cut looks set to come in June, subject to further confidence on the three criteria that have guided ECB policy making through the past year.

Policy Divergence Really Matters

Monetary policy settings across countries only make sense by also considering the fiscal context.In 2020, the world faced the common shock of the pandemic. Initially similar consequences later diverged under the influence of very different policy responses. Roll forward to 2024, and the signs of that divergence are even starker.

No Surprises from ECB

The ECB left policy rates unchanged yesterday as unanimously expected, and as such market impact was muted. While there was no direct confirmation of a June rate cut they reiterated that it will be appropriate to reduce rates if the economy develops as expected. We expect the ECB to deliver three 25bp cuts this year, but risks are skewed towards fewer cuts due to somewhat sticky domestic inflation.

Dollar Holds Better Cards Against Both Euro and Pound

The dollar holds the better cards against both the euro and the pound. EUR/USD is nearing the 1.07 pivot again and GBP/USD holds close to 1.25 this morning. Which will break first?