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DXY depreciated 0.4% to 103.4 after holding at 103.8 for two days. Renewed worries over US regional banks led the US Treasury 10Y yield lower by 5 bps to 4.10%, adding to Monday’s 6 bps drop. During his testimony to the US House Financial Services Committee, Fed Chair Jerome Powell said the losses in the commercial real estate sector, mainly afflicting small- and medium-sized banks, would be manageable. US bond yields have been easing in March on US data missing expectations. The disappointing ISM PMI readings lowered the Atlanta Fed GDPNow model’s growth projections for 1Q24 to 2.5% from 3.3% in a week. The significantly lower-than-expected employment and prices paid readings suggested that Friday’s nonfarm payrolls and next week’s CPI inflation data would also miss their marks.
Powell’s comments to lawmakers on monetary policy contained no surprises. Powell reiterated that the Fed would be patient in lowering interest rates this year, acting only after data assured the Fed’s progress in bringing down inflation. At the FOMC meeting on January 31, Powell said a rate cut was not the base scenario for the March 20 meeting. Meanwhile, two Fed Presidents have toned down their rate cut expectations. Atlanta’s Raphael Bostic favours delivering the first Fed cut in 3Q24, later than the futures’ projection for a June cut. Minneapolis’ Neel Kashkari expects 1-2 rate cuts this year, fewer than the three in the Fed’s dot plot. If more Fed officials mirror Bostic and Kashkari, the Fed could tone down its rate cut expectations in the upcoming Summary of Economic Projections.
Although the S&P 500 Index rose 0.5% overnight, it gave back most of its gains from Powell’s testimony. Similarly, DXY regained its composure towards the end of the testimony, bottoming at 103.2 before returning to its 100-day moving average at 103.4. Markets are cautious on the EUR, which recovered to levels at the start of 2024, ahead of today’s European Central Bank meeting on recent speculation that it may cut rates before the Fed.
Quote of the day
"We often look so long and so regretfully upon the closed door that we do not see the one which has opened for us.”
Alexander Graham Bell
7 March in history
In 1876, Alexander Graham Bell received a patent for the telephone in the US.
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