I am on vacation, and then on a business trip that will interrupt the commentary until the weekly note on April 30. The May monthly analysis will be published the following week after the FOMC meeting and April employment report. I wanted to weigh in on a few key market issues before leaving. New Divergence: The continued robust US jobs growth (276k average in Q1 24 and 251k average in 2023) and above-trend growth allow the Federal Reserve to remain focused on inflation. And for good reason: CPI has consistently been reported this year above expectations. The headline rate stands at six-month highs. Fed Chair Powell has drawn attention to the core services excluding housing, and it rose at around an 8% annualized pace in Q1. For all practical purposes, the

Overview:  Higher than expected US CPI for the
third consecutive month drove US interest rates sharply higher and lifted the
greenback broadly. The market appears to be catching its proverbial breath today,
but the shallow consolidation suggests the moves are not over. The ECB meeting
is likely to highlight the new divergence that has opened. The dollar has
reached nearly JPY153.30, and although Japanese officials cautioned about the
fx moves, intervention while Prime Minister Kishida is on his state visit to
the US strikes us highly unlikely. In any event, the broad dollar gains were fundamentally driven. China’s March CPI (-1.0% month-over-month and 0.1%
year-over-year) underscores the scope for the easier monetary policy, but the
PBOC continues to resist the

Overview: The dollar has been confined to
narrow ranges ahead of the US CPI report. Given the backup of US rates and the
stronger-than-expected jobs growth, the greenback’s performance has been
unimpressive. The Reserve Bank of New Zealand signaled that it was in no hurry
to cut rates and it helped underpin the New Zealand dollar. Up about 0.2%
today, it is leading the G10 currencies higher. Strong earnings from TSMC may
have helped underpin the Taiwanese dollar (~0.3%), which is trailing the
Mexican peso (~0.35%) to lead the emerging market currencies. Many Southeast Asian markets are closed to
the holiday today, including South Korea, where the parliament election is
taking place. Exit polls suggest a strong showing by the opposition Democratic
Party. The Hang

Overview: The dollar is trading with
a softer bias in mostly narrow ranges against the G10 currencies. It did not
rally much ahead of the US jobs data, and it was not able to sustain the upside
momentum afterwards, despite the jump in US yields. Former St. Louis Fed President
Bullard, who still has a strong reputation in the market, told Bloomberg TV
yesterday that three cuts were his base case this year. The Scandis and
Antipodeans are the strongest today, up about 0.25%-0.33%. The dollar continues
to hold below JPY152 barely. Most emerging market currencies are also firmer
today. The dollar continues to trade just inside its band against the onshore
yuan. Most of the large Asia Pacific equity markets rallied, led
by a 1.85% gain in Taiwan and a 1.1% advance by

Overview:  The jump in US rates after the employment
report failed to ignite a sustained rally in the dollar and this shaken the
market’s near-term confidence. The dollar has been mostly confined to narrow
ranges and the low yielding Swiss franc and Japanese yen are softest with the
G10 complex today. The dollar is knocking on JPY152. The Scandis and Antipodeans lead the advancers. The euro has
made little headway despite a much stronger than expected German industrial
output. Mainland China markets re-opened, and the dollar remains at the upper
end of the 2% band and above it against the offshore yuan. Most emerging market
currencies are softer, but the South African rand’s 0.5% gain stands out, which
some see as a gold play. The yellow metal reached a new

The March US employment data were stronger than expected and
lend support to the re-acceleration hypothesis and an extension of US
exceptionalism. In Q1 24, nonfarm payrolls rose by an average of 276k. It was
the strongest quarter in a year and compares with an average monthly job gain
of about 251k in 2023. The unemployment rate slipped as the household survey
jumped around 500k after falling in the previous two months. The workweek
increased, and the participation rate rose. Reasons to dismiss the employment
data are becoming thinner. The economy is still growing faster than what the
Fed regards as the long-term non-inflation pace (1.8%). The US two-year yield
rose 12 bp and approached the high for the year (4.75%), and the 10-year yield
set a new high (4.43%)

Overview: The
focus is squarely on the US employment report. At the risk of oversimplifying,
given the position adjustment in the past 48 hours, a solid report can see the
greenback recover, while a disappointing report will likely see it deepen the
correction of the rally that began with the February jobs report. The dollar
recovered in the North American afternoon yesterday and many observers
attributed it to the bevy of Fed comments. Yet, the interest rate market saw
little reaction. It seemed that it was the dramatic reversal in US equities
that helped dragged global shares down today, that forced US rates lower. 
Asia Pacific equities tumbled, led by more than 1% losses in Japan and South
Korea. Europe’s Stoxx 600 is off around 1.2%, and if sustained, could

Overview: The dollar is trading quietly against the G10
currencies as European markets remain on holiday. Narrow ranges have prevailed.
The dollar-bloc currencies are leading with minor gains, perhaps helped on the
margins by better-than-expected Chinese PMI, but the Scandis, which also
typically do well amid a better global growth profile are the laggards. This
may speak to the light liquidity conditions. Japan may have missed a tactical
opportunity to intervene to knock the dollar back ahead of what may be a solid
US jobs report at the end of the week. Erdogan’s AK Party lost the weekend
elections. The opposition CHP won 35 mayorships against 24 for the AKP. The
early signals are that Erdogan will stick with the turn toward economic
orthodoxy and in the current

The macroeconomic and
geopolitical developments have not changed substantially over the past month. The
resilience of the US economy allows the Federal Reserve to put more emphasis on
achieving price stability. While the market favors a June cut (66% vs. 80% at the end of February), it has
not been fully discounted for over a month. The biggest event in March may have been the
well-telegraphed exit from negative interest rate policy and Yield Curve
Control by the Bank of Japan. Yet, over the course of last month, Japan’s
two-year yield rose was virtually unchanged and the 10-year yield rose less than two basis points to 0.73%. For all practical purposes, the eurozone and UK
economies are stagnant, but the respective central banks also do not appear in
any hurry

Overview: Comments by Fed Governor Waller, urging
patience on rates and wanting more evidence that price pressures are moderating
has helped the greenback extend its recent gains. The yen is the notable
exception as the fear of intervention has restrained the dollar bulls. Poor
German data, including a sharp 1.9% drop in February retail sales, the fourth
consecutive monthly decline, underscored the euro’s negative divergence, and the
single currency was sold to new lows for the month below $1.0780. The
Antipodeans and Scandis are leading the G10 currencies lower with 0.6%-0.8%
losses. Emerging market currencies are mostly lower. The South Korean won, and
Taiwanese dollar are exceptions with miniscule gains. Equities in the Asia Pacific region are
mixed. Japan,

Overview: The dollar neared JPY152, setting a new
34-year high. This appeared to spur a senior official meeting in Tokyo,
ostensibly to talk about the response. Previously, we suggested that Friday,
when most markets outside of Asia will be closed, could provide an interesting
opportunity for intervention. The implicit threat was enough to take the dollar
to JPY151.10 in the European morning. Most of the G10 currencies are softer
against the dollar but the yen. A dovish Riksbank had negligible impact on the
Swedish krona. It could be the second G10 central bank to cut rates, following
last week’s Swiss decision. It may move in May. Most emerging market currencies
are softer today. The South African rand is the strongest, up by about 0.3%
before the central bank

Overview: After surging at the last week, the dollar
consolidated yesterday and is continuing to do so today as slightly lower
levels. The Swiss franc is the only G10 currency unable to gain traction
against the greenback today. Still, the dollar’s pullback has barely met the
minimum retracement targets of the jump last Thursday and Friday. The PBOC
lower the dollar’s fix slightly, but the proverbial toothpaste is out of the
tube and officials are struggling to reestablish order. Against the offshore
yuan, the dollar remains outside of its 2% onshore band. The Hungarian forint
is the strongest of the emerging market currencies ahead of the central bank’s
rate decision, where a 75 bp cut is expected after the base rate was slashed by
100 bp last month. Asia

Overview: The US dollar remains bid ahead of the outcome of today’s
FOMC meeting. No change in policy is expected, but the forward guidance, partly
delivered in the updated projections, is the focus. In the last iteration
(December), the Fed "dot" was for three rate cuts this year. Japanese
markets were closed for a national holiday today but dollar’s gains against the
yen have been extended and the greenback is nearing the peak seen in the last
two years slightly ahead of JPY152. The dollar is broadly higher but is holding
below yesterday’s best levels against the other G10 currencies. Emerging market
currencies are mostly lower. The South Korean won slightly firmer and may have
bene helped by flows in the South Korean stock market amid reports Nvidia is
looking

Overview: The US dollar is surging today against
most of the G10 currencies, and although the intraday momentum is stretched
ahead of start of the North American session, there may be little incentive to
resist before the end of the FOMC meeting tomorrow. The Bank of Japan’s rate
hike and the end of Yield Curve Control were not seen as the start of the
tightening cycle. The two-year JGB yield slipped to a two-week low and settled
below its 20-day moving average for the first time since mid-January. The Reserve
Bank of Australia delivered a dovish hold by dropping the reference the future
tightening. The yen (~-0.95%) and Australian dollar (~-0.85%) are the weakest
of the G10 currencies. Emerging market currencies are lower, led by the
Philippine peso (~-0.65%).

Overview: The US dollar is trading with a mostly
softer bias against the G10 currencies. The notable exceptions are the Japanese
yen and Swiss franc. Ironically, speculation of a Bank of Japan rate hike
appears to have increased, while there is a risk that the Swiss National Bank
cuts rates this week. The Norwegian krone is the strongest of the major
currencies. The central bank meets later this week but is widely expected to
stand pat. The continued rise in oil prices may be buoying it. Most emerging
market currencies are softer. The MSCI Asia Pacific Index
snapped a seven-week advance last week but rebounded today. The Nikkei rallied
nearly 2.2%, its biggest rally in a month. Better industrial production data
from China may have helped the CSI 300 rally nearly

There has been a dramatic adjustment to US rates. The
two-year yield was near 4.40% before the US employment report on March 8 and it
reached near 4.73% before the weekend. The 25 bp surge is the largest weekly increase
since last May. For the first time in four months, the Fed funds futures strip
is no longer has at least three rate cuts discounted. The interest rate
adjustment underpinned the dollar, which rose against all the G10 currencies
last week.  Like
the US two-year yield, the 10-year yield also rose every day last week, and its 23 bp increase was the most since the last October. The Dollar Index’s 0.70% gain was the largest rise in eight weeks, and ended a three-week decline. Rising rates helped lift the greenback almost 1.4% against the Japanese yen,

Overview: At the end of last week, the
derivatives market was again pricing in nearly four Fed cuts this year, but
this week’s data have seen expectations re-converge with the Fed’s three rate
cuts signaled in December, while cutting the odds of June hike to the lowest in
the more than four months. This has helped lift the dollar against all the G10
currencies this week. As is often the case in a firm US dollar environment, the
Canadian dollar has fared the best, slipping only 0.4%. Despite
heightened speculation that the Bank of Japan could hike rates as early as next
week and strong wage gains for employees at large companies, the yen is off by
more than 1% this week and trading recorded a six-day low today. Emerging
market currencies are mixed today, with

Overview: We have put emphasis on today’s US retail
sales report. A recovery from the weather-induced weakness in January should
underscore the resilience of US demand after another 200k jobs were created and
personal income jumped 1%. While the dollar has traded firmer in the first half
of this week, given the 25 bp jump in the US two-year yield, its performance is
somewhat disappointing. It is narrowly mixed in the European morning against
the G10 currencies. The dollar bloc, sterling- and the Norwegian krone enjoy a
slightly firmer bias. The euro, yen, and Swiss franc are nursing minor losses. Most
emerging market currencies are softer, but for the second consecutive session,
the Hungarian forint is recovering and leading the advancers. Equity markets are

Overview: We came into this week
expecting the dollar to rise on the back of a recovery in rates. The two-year
note has risen from 4.40% after the jobs report to 4.60%. The dollar’s rise has
been less impressive. The Dollar Index had begun with week with a six-day fall
in tow. Today is it is rising for the third session. However, the gains have
been a modest 0.80% off the pre-weekend lows. The dollar broadly is
consolidating in narrow ranges thus far today in quiet turnover. Despite
promising reports on wage negotiations in Japan, the yen is softer for the
second session. A quiet North American session is expected ahead of tomorrow’s
retail sales report. The US Treasury sells $22 bln 30-year bonds today. Yesterday’s
10-year sale tailed and saw lighter indirect

Overview: The US CPI has become one of the most important high-frequency economic reports for the capital markets. The dollar is going into the report narrowly mixed against the G10 currencies. Comments by BOJ Governor Ueda about the weakness in consumption of non-durable goods was seen by some as reducing the likelihood of a change in policy next week. The greenback is threatening to snap a five-day drop against the yen. Most of the G10 currencies are in narrow ranges ahead of the US CPI. Emerging market currencies are also mixed, Russia, Thailand, and Hungary are the weakest, while the South African rand, Czech koruna, and the Chinese yuan lead the advancers. The Chinese yuan on- and offshore traded at their best levels since the end of January.
Equities are

Overview: News that the Japanese economy expanded
rather than contracted in Q4 23 has fanned expectations that rates could be as
early as next week. This is helping keep the yen supported, though it remains in
the pre-weekend range, albeit barely. While the dollar is softer but consolidating against the
euro, Swiss franc, and Canadian dollar, it slightly firmer against the
Antipodeans and Scandis. Sterling is also in a narrow range, but with a softer bias. Most emerging market currencies are firmer, with the Hungarian forint and
Turkish lira the notable exceptions. A quiet North American session looks
likely with a light economic calendar ahead of tomorrow’s US CPI. The yen’s recovery and rate
speculation weighed on Japanese stocks. The Nikkei and Topix fell by

When everything was said and done last week, the
market did not change its mind. There was still a better than 90% chance that
the Federal Reserve delivers its first rate cut in June. Fed Chair Powell told
Congress that the central bank was not far from the level of confidence needed
to cut rates. The market understands "not far" to mean three months. The US
reported a 275k gain in February’s nonfarm payrolls. Taking the past two
month’s downward revisions into account, it was the third consecutive month of
more than 225k jobs being created. The 265k average over the past three months
is the highest since last June. The unemployment rate rose to 3.9% from 3.7%. The Japanese yen appreciated 2% last week amid
speculation that the Bank of Japan could lift rates

Overview: The dollar is narrowly mixed against the
G10 currencies to begin the week that features a Bank of Canada and ECB
meetings, US jobs data, Federal Reserve Chair Powell’s two-day testimony before
Congress, and US President Biden’s State of the Union address. Most emerging
market currencies are firmer. The Turkish lira is a notable exception. Higher
than expected took a toll, knocking it down by around 0.5%. On the other hand,
the Malaysian ringgit is up almost as much as the government appears to be
persuading state-owned companies to repatriate foreign earnings. The Nikkei settled about 40k
for a new record, while the Topix slipped fractionally. Most of the large
bourses in the Asia Pacific region rose by Australia, New Zealand, and the
mainland shares

Rarely are officials able
to achieve the proverbial economic soft-landing when higher interest rates help
cool price pressures without triggering a significant rise in unemployment or a
contraction. Yet, without declaring victory, the Federal Reserve’s confidence
that this will be achieved has risen. Still, its increased confidence is
unlikely to lead to a rate cut this month. To appreciate where things
stand begins with recognizing that what has characterized the first two months
of the year is a reaction and correction to what happened in Q4 23. The decline in interest
rates in the last few months of 2023, in turn, helped lift the stock market. The S&P 500 rallied 11.25% in
Q4 23, it best quarterly performance in three years. Much focus is on the
narrow breadth

Overview: The US dollar is mixed today. The
dollar-bloc currencies and the Scandis are enjoying a slightly firmer tone, while the
euro and sterling are edging higher in European turnover. The Swiss franc is softer, and the yen
has given back most of yesterday’s gains after BOJ Governor Ueda acknowledged
that central bank seeks further confirmation that sustainable price goal is
within reach. We see it as a further signal of an April move on rates rather
than this month. Emerging market currencies are mostly lower but for a few
Asian currencies. The Dollar index is up about 0.25% this week coming into the
North American session. It fell by around 0.35% last week. Asia Pacific equities rallied today. South Korea and Taiwan were exceptions. Europe’s Stoxx is
up

Overview: Most of the G10 currencies are trading quietly in narrow ranges today. After a slightly firmer than expected national
CPI reading, which still moderated, and a pullback in US yields, the Japanese
yen is the strongest of the major currencies. The dollar has pulled back from
almost JPY151 to nearly JPY150. The New Zealand dollar is the weakest, off
about 0.2% ahead of tomorrow’s central bank meeting. After selling $127 bln of
coupons yesterday, the US Treasury comes back with $42 bln seven-year note
sales and $80 bln in a 42-day cash-management bill. A sharp drop in Boeing
orders will make for a poor durable goods orders report, but more generally,
capex looks set to slow after a sharp expansion in Q2 23 and Q3 23, perhaps
ahead of the November election.

Overview: The dollar is beginning the new week mixed. The
dollar-bloc currencies and Japanese yen are softer while the European
currencies enjoy a firmer today. Among emerging market currencies, central
European currencies are trading with higher. The Turkish lira is the notable
exception. It is the weakest currency today, off about 0.65%. The Chinese yuan
is a little softer, but the dollar continues to be capped near CNY7.20. Last
week, more often than not, the North American session saw the dollar trade higher,
and we suspect that pattern may continue today. The euro is setting session
highs as North American traders prepare to enter the fray and the intraday
momentum indicators are extended. China’s CSI 300 snapped a nine-day advance today, falling 1%.

The US dollar and interest rates appear to be at an inflection point. Much of the past several weeks have been about correcting the overshoot that took place in  Q4 23, when the derivatives markets were pricing in nearly seven quarter-point rate cuts by the Federal Reserve this year. US two- and 10-year interest rates set new three-month highs last week. With the help of economic data and comments by Fed officials, the market, as it did a few times last year, has converged to the Federal Reserve. That adjustment seems to have run its course. We look for softer US economic data in the coming weeks, which may help cap US rates. At the same time, the technical condition of many of the G10 currencies has improved and momentum indicators are turning higher. Growth

Overview: Amid a light news stream,
the dollar is mostly in narrow ranges against the G10 currencies. Leaving aside
the Norwegian krone, the others in a +/- 0.15% against the dollar today. We
note that the technical tone of the euro and sterling have improved withe the
five-day moving averages crossing above the 20-day moving averages. On the
other hand, the dollar is approaching the year’s low set last week near
JPY150.90. Emerging market currencies are mostly lower, On the week, emerging
market currencies are mixed, though central European currencies are generally
fared best. Still, the JP Morgan Emerging Market Currency Index is likely to
finish the week lower. It has fallen every week so far this year. The
dramatic equity rally in the US yesterday helped lift

Overview: The dollar is trading quietly
after being sold yesterday. It is still soft against the dollar bloc and the
Swiss franc but is firmer against the other G10 currencies. Narrow ranges have
dominated. Emerging market currencies are mixed, with central European
currencies and the Taiwan dollar trading softer. The offshore Chinese yuan is
firmer for the sixth consecutive session. The highlights of today’s North
American session features minutes from last month’s FOMC meeting, a $16 bln
sale of 20-year Treasuries, and Nvidia’s earnings. Most large
equity markets in the Asia Pacific region fell but Hong Kong and China. The CSI
300 rallied four consecutive sessions before the Lunar New Year holiday and is
up in each of the three sessions since returning.