FLEE - Dollar Consolidates But Adjustment Is Not Over

2024-04-11 08:05:00 ET

Summary

• The market appears to be catching its proverbial breath today, but the shallow consolidation suggests the moves are not over.
• The dollar has reached nearly JPY153.30, and although Japanese officials cautioned about the FX moves, intervention while Prime Minister Kishida is on his state visit to the US strikes us highly unlikely.
• The market has downgraded the chances of a June ECB cut to around 80%, the lowest since last October.
• Gold fell by about $18.75 an ounce yesterday, its largest loss in about a month. It is trading softer today near $2332.

Overview

Higher than expected US CPI for the third consecutive month drove US interest rates sharply higher and lifted the greenback broadly. The market appears to be catching its proverbial breath today, but the shallow consolidation suggests the moves are not over. The ECB meeting is likely to highlight the new divergence that has opened. The dollar has reached nearly JPY153.30, and although Japanese officials cautioned about the FX moves, intervention while Prime Minister Kishida is on his state visit to the US strikes us highly unlikely. In any event, the broad dollar gains were fundamentally driven. China's March CPI (-1.0% month-over-month and 0.1% year-over-year) underscores the scope for easier monetary policy, but the PBOC continues to resist the downward pressure on the yuan....

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