The US $ Index traded at fresh yearly highs after a combination of stronger-than-forecast US manufacturing activity and hawkish commentary from Fed Chair Powell. US bond yields surged, with markets now reducing their expectations of a June rate cut to 50%, and interestingly are now only pricing in a total of 65 basis points reduction for the year, which is less than the Fed’s own forecast of 75 basis points. This is in stark contrast to only a few months ago where markets were pricing in 150 basis points of cuts through 2024.
Elsewhere, UK Shop price data out this morning will give encouragement to the Bank of England and consumers alike, as the BRC survey showed prices rising at their slowest pace in more than 2 years, with headline store inflation rising 1.3% versus the previous month's 2.5% rise.
*Daily move - against G10 rates at 7:30am, 02.04.24
** Indicative rates - interbank rates at 7:30am, 02.04.24
The strength of the US economy continues to defy forecasters, with recent manufacturing data showing growth for the first time in 1.5 years causing a huge re-pricing across the Bond and interest rate markets. The US dollar is also attracting further inflows after US Fed Chair Powell dialled back expectations of early rate cuts. All eyes will now be on Friday’s US monthly employment report where payrolls are expected to increase by 200k and the unemployment rate to hold steady at 3.9%.
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