On Monday morning, the US dollar consolidated last week’s gains, while crude oil slid further and equities inched higher. On a trade-weighted basis, the buck rose more than 1% last week and reversed the negative momentum in which it was stuck for the last of months, thanks to a continuous surge in US treasury yields. Looking ahead to this week, there are many economic data releases. The show will start today with the Fed’s favourite gauge of inflation, the core PCE. Headline personal consumption expenditure is expected to have slightly accelerated in March, with median forecast at 2%y/y compared to 1.8% in the previous month. The core measure should print at 1.9% versus 1.6% in February. Personal income and spending should both come in at 0.4%m/m. An upside surprise in the former could definitely trigger another USD rally as it would send a positive signal about the US economic outlook and especially growth and inflation.
In the FX market, the Australian dollar and the New Zealand dollar were the worst performer this morning as investors discount further a tightening move from both Reserve Bank. AUD/USD erased Friday’s gains and returned to $0.7550, while the Kiwi slid to $0.7060, down 0.35% on the session.
After falling 2.8% last week, EUR/USD bounced back 0.60% last Friday and traded sideways on Monday. Even though we believe the ECB will act with caution in its monetary policy tightening, we are having a hard time seeing the single currency much lower. It is true that the Fed is much more advanced in its tightening cycle, but the ECB has much more in reserve.
By Arnaud Masset