US dollar update

US dollar summary

The US Dollar Index experienced an uplift, reaching 103.10, propelled by soaring U.S. Treasury yields following the release of February’s Producer Price Index figures, which were higher than anticipated, marking a 1.6% year-over-year increase, surpassing the expected 1.1%. Core PPI also saw a rise to 2.8% from the prior 2.6%. Despite these increases, Retail Sales in February grew by 0.6%, not meeting the 0.8% forecast, while Core Retail Sales experienced a decline of -0.8%, revealing consumer caution amid rising prices. The labor market remained robust with Initial Jobless Claims reported at 209K, lower than the anticipated 218K, reflecting ongoing economic resilience.

The Federal Reserve’s stance appears mixed against the backdrop of persistent inflationary pressures and a strong labor market, suggesting the potential for a tighter monetary policy. Current market predictions are leaning towards a reduced likelihood of a rate cut in May, under 6%, and around 60% for June, with an expectation set by the Fed for three rate reductions within the year. This outlook might be adjusted during the FOMC’s March meeting, where updated macroeconomic projections will be released, providing further insights into the Fed’s monetary policy direction.

Market participants are expected to closely monitor the initial release of the US Michigan Consumer Sentiment Index for March, scheduled for publication today. Attention today also turns to the Empire State Manufacturing Index, anticipated to show a decrease to -7, alongside Import Prices that are likely to indicate ongoing inflation with an expected rise of 0.3%. Finally, data on Industrial Production and the Capacity Utilization Rate will provide valuable perspectives on the state of the manufacturing industry.


Market Views & Opinions

CIBC Capital Markets in yesterday’s Economic Flash comments on the U.S. Retail Sales result:

“How will the Fed react to today’s number and the risk of a slowdown in retail sales? We expect they won’t be very phased. Typically, a surge in goods consumption is followed by a period of pullback. Once you purchase a television, refrigerator, or a chair, you usually don’t go out and buy another one until you need to replace it. That is especially true if you have not moved into a new house which Americans are mostly not doing given where mortgage rates are. The dip in January and the weak rebound may be a sign that a pullback is starting to materialize after a year of impressive goods consumption.”

Mitsubishi UFJ Financial Group in the FX Daily Snapshot today comments:

“While we don’t think the developments will be sufficient at this stage to prompt the Fed to adjust their plans for three rate hikes this year at next week’s FOMC meeting, it is likely that the Fed will display more caution over the inflation outlook in the near-term. In response to the recent run of disappointing US inflation data, the US rate market has been paring back expectations over how early and deeply the Fed is likely to cut rates this year.”



The information in this report is of a general nature only. It is not a piece of personal financial advice. It does not take into account your objectives, financial situation, and personal needs.

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