The dollar gains as the FX markets take their cue from bond markets which continue to sell off. US Inflation data on Thursday (PCE) and jobs data on Friday (+490K) will likely reinforce expectations the Fed will consider raising rates by 50bps at their next FOMC meeting in May. However, Japan has announced targeted JGB buying to tap down higher rates thereby leading to further weakness. The yen which has lost 7.5% relative to the USD since the start of March.
Economic Data this Week:
Tuesday: JOLTS Job Openings for February, S&P CoreLogic house prices for January
Wednesday: ADP Employment Change for March and MBA Mortgage Applications
Thursday: PCE Deflator for February, Weekly Initial Jobless Claims, Personal Spending
Friday: Nonfarm Payrolls, Average Hourly Earnings, ISM, Unemployment Rate – all for March
March 28, 2022
EUR/USD 1.0955 GBP/USD 1.3094 USD/CAD 1.2526 AUD/USD 0.7484 USD/JPY 123.82 USD/CNH 6.3874 USD/ILS 3.2231 USD/MXN 20.0861 USD/CHF 0.9351 USD/INR 76.1650 USD/BRL 4.7857 USD/SGD 1.3611 USD/DKK 6.7884 USD/SEK 9.5448 USD/NOK 8.7128
The dollar is stronger compared to almost every currency. Inflation and employment data are due this week and are expected to strengthen the case for larger rate hikes. The PCE report, released Thursday, is expected to show that inflation accelerated. Employment figures, due Friday, are expected to again show strong gains (+495K). The gap between five-year and 30-year yields inverted for a short time overnight for the first time since 2006.GBP
The British pound hit a low of 1.3027 on March 14 before rebounding to 1.3252. Weakness is again hitting GBP and some FX traders expect the pound to test the recent lows. Bond yields in the UK, although up significantly, have not risen as much as US Treasuries providing a lift to the greenback.EUR
The euro is sinking on overall US dollar strength. German 10yr government bonds are still well below 1% whereas the US 10yr touched 2.5% overnight. Lagarde has announced that European data does not currently point to a material risk of stagflation. According to the ECB Chief, Eurozone output has recovered to pre-pandemic levels, growth has resumed, and the labor market is strong, also hinting that net asset purchases may end in the third quarter.CAD
The Canadian dollar is slightly weaker this morning as the price of oil is down 5%. CAD remains relatively strong having gained 3% vs. the greenback since mid-March. The Federal Reserve and Bank of Canada have similar plans to raise interest rates, so any strength or weakness in the FX rates seems to be coming down to the price of oil.ASIA/PACIFIC
The Japanese yen has dropped following the BOJ's announcement that it will purchase an unlimited amount of 10-year bonds. The central bank of Japan is actively seeking lower longer-term rates while bond yields in the US and elsewhere are allowed to rise.
Chinese yuan is at its weakest point in two weeks following announcements that the city of Shanghai will begin a 4-day lockdown. There is concern the COVID-related measures will hurt the Chinese economy and spill over into the global economy.
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