The USD is broadly weaker through quiet overnight trading ahead of the Easter long weekend. The decline in US yields through yesterday’s North American morning resumed at the Asia open and took the 10-yr yield near yesterday’s low before moving back to unchanged on the day, but the damage to the USD is done and losses are not significantly reversing ahead of our session as the DXY pulls away from the 100 mark. German and UK 10-yr yields are both up about 6bps on the day. Commodity prices are mixed with WTI down over 1% (which perhaps is resulting in a minor underperformance of the NOK) while copper is up 0.3%, and gold is down 0.5%. European equities are slightly higher (+0.4% for the Euro Stoxx vs flat FTSE 100) after decent gains in Asia (Japan and China up 1.2%) while US equity futures are marginally weaker. The AUD is down a touch through overnight trading and lagging most of its major peers after jobs data yesterday disappointed with a smaller than expected increase in employment (+18k vs 30k expected) while the unemployment rate held at 4% against expectations that it would tick lower to 3.9%. Australian 2-yr yields closed down 10bps compared to practically unchanged 2-yr USTs. Markets are convinced that the first RBA hike will come in June (we think July) with a total of ~190bps in hikes throughout the year—which is much more than our and economists’ forecasts (both at 65bps over 2022) and opens up the AUD to important losses as these expectations are repriced. The ECB’s policy announcement at 7.45ET (see more below) should not deliver a major surprise. The focus of the day’s session after that will be US retail sales and jobless claims data out at 8.30ET, the U Mich survey at 10ET (with a focus on inflation expectations), and an appearance by the Fed’s Williams (dovish, voter) on Bloomberg at 8.45ET will briefly catch the market’s attention before trading likely dies down (even more) before the long weekend (US/CA closed tomorrow, EZ/GB closed tomorrow/Monday); bond markets close early in North America. The PBoC is expected to announce a reduction in its medium-term lending facility rate overnight, and China’s State Council said yesterday the country will use “a RRR cut at an appropriate time” to support the economy—which the PBoC may deliver overnight or in coming days.
The pound was given a helping hand from declining US yields to a test of 1.31 yesterday to outperform among the G10 with the added minor tailwind of the day’s CPI beat. The UK morning was extremely quiet and trading should remain limited ahead of the long weekend with European markets closed tomorrow and on Monday, with the GBP posting a minor 0.1/2% gain on the session amid broad dollar losses. The UK data and events calendar does not pick up until next Thursday when BoE Gov Bailey’s speech at the PIIE may provide hints on the BoE outlook. As things stand, odds are he will not reinforce rate expectations and the GBP remains at risk of falling back under 1.30. Mar retail sales and S&P (formerly Markit) PMIs next Friday will round out the week and possibly weigh on the GBP further.