The current risks are towards more ECB easing, but because medium-term risks are tilted to the upside, we think markets will remain firmly anchored around a 1.75% landing zone. In the US, the ultra front end has a tight feel to it, while longer tenor yields have a more loose tendency. We identify some technical factors driving this
Hungary's recent labour market data shows a seasonal improvement, resulting in a record-high employment rate. The situation for employers is growing hotter as wage expectations remain high, but the economy struggles to thrive
The thing about the Lisa Cook affair is it's laced with legal grey. We make the simple apolitical assumption, from a market’s perspective, that Ms Cook will be replaced. Tough to undo what's been done, and an extrapolation of these circumstances result in a steeper curve from both ends. The front end does not care. The back end cares a lot (or at least should)
The US Dollar has been in a weird trading zone since the contradicting NFP report from the beginning of the month (forcing a dovish hand) and the strong PPI report that has shown the appearance of tariff effects (forcing a hawkish hand).
Eurozone optimism has pushed the German two-year yield to the brink of pre-'Liberation Day' levels. Just shy of 2%, the balance of risk is towards near-term lower yields again. US rates are quick to fade the dovish move from last Friday, and we think the back end of the curve will want to test higher still
Chair Powell could have been super balanced, or even hawkish. But he effectively chose to endorse the market discount for a rate-cutting phase ahead. It's had quite the reaction. Risk assets are up, the dollar down, so's the front-end yield. Watch longer tenor yields though - the deep thinkers of the bond market, and not quite convinced cuts are all good
The FOMC minutes seem to be from a different time, pre the payrolls revisions; but can still embolden Powell on Friday. Gilt yields came down on the day of hotter CPI numbers suggesting a possible peak. Having said that, with Autumn Budget discussions kicking off, volatility is likely to remain. Meanwhile, the path for the 10y euro swap rate is still up
President Trump announced tariffs on autos and parts. In line with our expectations, and ahead of the main course expected for April 2nd, the US announced this week 25% tariffs on imports of autos and auto parts.
• USD firmer as markets trade cautiously into Fed decision.
• CAD slips back from probe through upper 1.42s.
• EUR drifts lower after another failure around 1.0950 yesterday.
• GBP tracks peers, short-term price patterns may be tilting negative.
• JPY drops after BoJ holds policy rate at 0.50%, as expected.
• AUD, NZD lower in line with peers; Aus jobs, NZ GDP data due tonight.
• MXN softer on the day but holds gains back through 20.
The Canadian dollar was the top performing G10 currency yesterday with the policy announcement and communication update ultimately helping to lift the currency. The 25bp cut was well telegraphed and fully priced so the 10bp intra-day jump in the 2yr swap rate was more down to the communications having a hawkish element.
Diplomatic efforts have intensified to stop the fighting between both Russia and Ukraine as well as Israel and Hamas. But a durable resolution to both conflicts will not be easy to achieve. The public disagreement in the White House between President Trump and his Ukrainian counterpart underlined the challenges.
We do not expect large, broad, and sustained US tariffs, but repeated threats of higher tariffs on key trading partners and a lack of policy visibility could weigh on business investment and hiring even if they are never imposed. More volatile markets require an increased focus on portfolio diversification and hedging approaches.
The US dollar is little changed at the start of this week as it continues to trade at weaker levels following last week’s sharp sell-off. The dollar index has fallen back below the 104.00-level giving back all of its gains since the US election victory for President Trump.
