News & Analysis

Long dollar positions continued to be in favour in this holiday shortened week as Fed officials Bostic and Waller showed a preference for either a delayed or shallower easing cycle, while fourth quarter US GDP was revised up on stronger consumption in the third reading, and more central banks tilted in a dovish direction. That said, the dollar DXY index ultimately closed the week out flat as the macro community’s preference to go long USD ran up against quarter-end and fiscal year end flows out of the greenback following strong US equity returns and more notable push back from policymakers in Japan and China. Outside North America, the general theme of G10 central bank dovishness continued too. In Sweden, the Riksbank hinted at the possibility of a May rate cut at their March meeting, while ECB policymakers came  across dovish, a stance supported by softer core inflation data out of Spain and a sharp decline in German retail sales. Next week should start off with a quieter tone relative to this week where the focus was on the PBoC’s actions following Friday’s sharp CNY sell-off. The Easter holidays in many parts of the world are set to bring reduced liquidity and limited price action across FX markets. They are also likely to make a mess of Eurozone inflation figures. Meanwhile, traders will get an opportunity to better understand the reaction functions of several other central banks next week, with an NBP rate decision in scope, as well as meeting minutes for the RBA and Banxico. That said, the main event will be jobs data out of North America on Friday. This should once again highlight US economic resilience, especially when contrasted against what are likely to be much softer Canadian figures.

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Authors: 

Simon Harvey, Head of FX Analysis

María Marcos, FX Market Analyst

Nick Rees, FX Market Analyst

 

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