The market reaction is relatively subdued, and the reaction of US investors may be key. The US dollar is consolidating mostly within yesterdays' ranges. Gold is at its best level for the week above $3035. Equities are also mostly calm, though Taiwanese and South Korean indies fell over 1%. Europe's Stoxx 600 is off about 2/3 of a 1% and US index futures are narrowly mixed. Benchmark 10-year yields rose in the Asia Pacific region but are 1-2 bp softer in Europe. The 10-year UK Gilt is bucking the trend, and the yield is up 5-6 bp. The 10-year US Treasury yield is up 3-4 bp to almost 4.39%, its highest level since February 25. May WTI is consolidating inside yesterday's range. It traded above $70 a barrel yesterday for the first time since early this month, but is holding below it, so far today.
USD: The Dollar Index reached almost 104.70 yesterday, its best level since March 5. It stopped shy of our 104.90-105.00 target and is consolidating inside yesterday's range today. Support is seen in the 104.00-20 area. The momentum indicators are constructive, and the five-day moving average looks poised to cross above the 20-day moving average for the first time in two months. Today offers another look at Q4 24 GDP but it not so important as Q1 25 winds down. With its update yesterday, the Atlanta Fed's GDP tracker still sees the economy contracting by 1.8%, but most economists demur. Today's data will feed into Q1 GDP forecasts. After the surge in the goods deficit in January (to a record $155.6 bln, more than a 70% increase from January 2024) as businesses tried front-running tariffs, the February deficit is expected to have remained wide (~$138 bln, according to the median forecast in Bloomberg's survey). But the risk in on the upside if the 25% rise in gold inventories in NY reflected more imports, which seems likely. More broadly, some of the goods are in warehouses, and another jump in wholesale inventories is expected (0.7% after a 0.8% increase in January, after liquidation in H2 24). Gold at Comex is not included in the wholesale inventory measure. Weekly jobless claims pose headline risk, but next week's jobs report is more important. Job growth is expected to slow, and the unemployment rate is seen ticking up. After falling by nearly 9% in December-January, pending home sales, may have stabilized.
EURO: The euro settled below its 20-day moving average (~$1.0770) for the first time this month. It fell through yesterday's low (~$1.0745). Buyers emerged ahead of the $1.0725-30 support area before bouncing back today to approach $1.0790. Consistent with the euro's pullback, the US two-year premium over Germany is near 188 bp, which is a little more than 20 bp off the five-month low seen March 10. The eurozone reported February money supply figures (M3 rose 4% year-over-year vs3.8% in January). There was a time when the euro was sensitive to the time series, but not so much anymore. Credit growth is improving, and this is consistent with the nascent recovery that appears underway.
CNY: The offshore yuan has fallen against the dollar for seven consecutive sessions through yesterday. It is the longest decline since October 2022 when it was moving to a lower trading range. There is no sign of strains or resistance by Beijing. The US dollar reached almost CNH7.2825 yesterday, its highest level since March 4, and held slightly below it today. The next interesting chart area is around CNH7.2945, which is about the halfway mark of the greenback's decline from the Q1 25 high set February 3 near CNH7.2735. After raising the dollar's reference rate for four consecutive sessions, the PBOC cut it yesterday but it yesterday but raised it again today (CNY7.1763 vs. CNY7.1754 yesterday).
JPY: The dollar's recovery from the five-month low on March 11 (~JPY146.55) does not appear over. It reached almost JPY150.95 on Tuesday and consolidated yesterday, recording an inside day. The greenback is trading inside yesterday's range today and held JPY150.00. The month's high was near JPY151.30, but more formidable resistance is in the JPY151.65-70 area. Momentum indicators are trending higher, the five-day moving average crossed above the 20-day moving average on March 20 for the first time since mid-January, and the US 10-year yield is at the upper end of this month's range. With a dozen weekly MOF portfolio reports in 2025, we can see Japanese investors have slowed their average weekly foreign bond purchases from the same period last year (~JPY222 bln vs. JPY478 bln) but are buying foreign equities on average (~JPY181 bln vs.-JPY15.1 bln). Foreign investors for their part have boost their purchases of Japanese bonds (~JPY457bln vs. JPY60 bln). On the other hand, foreign investors have been unloading Japanese equities (~-JPY430 bln a week with purchases JPY158 bln).
GBP: Sterling was sold yesterday in response to the downtick in February CPI and made a new low after Chancellor Reeve's budget statement. The selling pushed sterling below the 20-day moving average (~$1.2885) for the first time since mid-February. It made a marginal new low today near $1.2870 before recovering to almost $1.2930. Initial support is in the $1.2840-60 area and then $1.2785-$1.2800. The momentum indicators are falling, and the five-day moving average looks poised to cross below the 20-day moving average in the coming days for the first time in two months.
CAD: The US dollar fell to a marginal new low for the month against the Canadian dollar near CAD1.4235. But the US threat of an auto tariff announcement and sharp equity market losses fanned risk-off adjustments, which saw the greenback recover almost CAD1.4300 in late dealings. It rose to almost CAD1.4320 today. The election is a month away and the campaign is heating up, with both leading candidates promising fiscal support for various constituents. Nevertheless, Canada's 10-year discount to the US has narrowed from a record of about 150 bp in early February to almost 120 bp. The two-year differential has is around 20 bp less than the peak early last month near 164 bp.
AUD: After reaching a four-day high near $0.6330, the Australian dollar reversed lower and took out Tuesday's low by 1/100 of a cent, according to Bloomberg pricing, amid in a risk-off North American afternoon. It slipped through $0.6280. It is trading inside yesterday's range today. Last week's low was slightly below $0.6230. In Australia, ahead of the May election, the government also announced tax cuts and other fiscal measures. When the Australian dollar bottomed in early February near $0.6090, its two-year yield was at a discount to the US of a little more than 50 bp. As the discount narrowed the Aussie recovered. The two-year discount was halved by the end of last month and the Australian dollar finished last month near $0.6200. The discounted narrowed to about eight basis points earlier this month, the least since last early last November. It widened again to a little more than 30 bp but is now back around 25 bp.
MXN: The dollar is firm against the Mexican peso, having approached last week's high near MXN20.27 against the peso ahead of what is an important day for Mexico. Yesterday it held above MXN20.00 and reached nearly MXN20.17. The greenback rose above the 20-day moving average (MXN20.2150) today but is back below it. The dollar has not closed above it since March 4. While the US tariffs are center stage today, Mexico reports its trade figures ahead of the central bank meeting. For the past 18 years without failing Mexico's February trade balance improves sequentially from January. January's $4.56 bln deficit was the largest shortfall since August 2022. Through January, both imports and exports have fallen for the three consecutive months. January exports fell 14%. In January 2024, they fell 14.5% and in January 2023, they fell by 13.6%. Imports seems somewhat less seasonal. The fell 0.25% in January 2025 but rose by 2.8% in January 2024 and fell by almost 3.4% in January 2023. Mexico's central bank meets. With inflation within the target range, the economy weak, and peso resilient, all but one economist among the 29 in Bloomberg's survey project a 50 bp cut. After cutting by 50 bp today top being the target rate to 9.0%, its second half-point cut in a row, we expect Banxico to indicate that further easing will likely be at a slower pace. With a half-point cut largely discounted, we think the cost of providing this extra monetary support ahead of the negative impact from the US tariffs is acceptable and the peso is around it four-week average.
Reviewed by Marc Chandler
on
March 27, 2025
Rating:
