BUZZ-COMMENT-US recap: EUR/USD slips as US yields rise before central banks meet

Credit: REUTERS/Dado Ruvic

March 18 (Reuters) - The dollar index rose 0.14% on Monday as traders awaited the conclusions of the BoJ and RBA meetings on Tuesday, the Fed on Wednesday and the BoE and SNB on Thursday, though most of the focus is on the Fed and the BoJ.

Unexpectedly upbeat China industrial output and retail sales promoted better risk-taking early on Monday, weighing on the haven dollar, but the focus then shifted back to rising Treasury yield spreads over bunds, gilts and JGBs amid fading 2024 Fed rate cut pricing ahead of the FOMC.

As it stands, futures no longer favor a first cut in June and price in just 69.6bp of cuts for the year as some worry the Fed will signal two cuts are now more likely than the three December's median dot plot landed on.

Above-forecast U.S. inflation updates, rebounding commodity prices and still relatively tight labor data favor the Fed being cautious with cuts, but below-forecast and downwardly revised February retail sales, surging credit card debt and rising delinquency rates hint that the longer Fed rates and Treasury yields remain high, the greater the economic risks.

However, the same could have been said several months ago, but the U.S. economy has proven more resilient than expected.

EUR/USD fell 0.13%, with the ECB seen cutting rates sooner and by more than the Fed this year.

USD/JPY remained underpinned by rising Treasury-JGB yields spreads, even after yet another Japanese press report indicated the BoJ was preparing to wind down much of its massive monetary easing program. But last week the market began writing off yen strength linked to the BoJ as it became clear the bank's policy normalization would be too limited to trigger a major repatriation of yen-funded foreign investments.

USD/JPY's rebound has neared 21- and 30-day moving average hurdles at 149.40/44, and could continue to 2024's highs close to 2023/22's 32-year peaks if the BoJ signals cautious normalization and the Fed keeps inflation fighting its top priority.

Sterling was slightly softer, extending its correction from March's overbought and fleeting breakout above December's highs, with Gilts-Treasury yield spreads now near their most negative this year due to 2024 Fed rate cut pricing now down at 69.7bp and nearing the 65bp of BoE cuts priced in.

For more click on FXBUZ

(Editing by Burton Frierson Randolph Donney is a Reuters market analyst. The views expressed are his own.)


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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