Market Overview In observance of Good Friday, financial markets in Europe and North America remained closed, while energy, precious metal, foreign exchange, equity index, and US Treasury futures trading at the Chicago Mercantile Exchange (CME) and Intercontinental Exchange (ICE) were suspended for the entire day. Activity in the foreign exchange market was relatively subdued during the quiet holiday period
Market Overview
In observance of Good Friday, financial markets in Europe and North America remained closed, while energy, precious metal, foreign exchange, equity index, and US Treasury futures trading at the Chicago Mercantile Exchange (CME) and Intercontinental Exchange (ICE) were suspended for the entire day.
Activity in the foreign exchange market was relatively subdued during the quiet holiday period. Notably, the US dollar index (DXY) experienced a rapid shift from gains to losses following the release of data showing the core personal consumption expenditures (PCE) price indexthe Federal Reserve's preferred measure of inflationcooled in line with market expectations.
Core PCE Data Signals Inflationary Easing
The PCE price index for February, released Friday, showed both a year-over-year and month-over-month slowdown in growth compared to January. The annual increase of 2.8% represented the lowest since March 2021, while the monthly gain of 0.3% fell below the upwardly revised 0.5% increase in January. This moderation in core PCE growth came as a relief to the Federal Reserve, especially after the higher-than-expected inflation data in the consumer price index (CPI) and producer price index (PPI) earlier this month. Analysts suggested that the PCE data could bolster market expectations of interest rate cuts by the Fed.
Fed Chair Powell Maintains Cautious Stance
Speaking after the PCE release, Federal Reserve Chair Jerome Powell described the core PCE data as "broadly in line with expectations" and reiterated that the Fed is in no rush to cut interest rates. Powell emphasized the need for further evidence of "sustained improvement" in inflation to build confidence and affirmed that the Fed expects inflation to continue on a "bumpy path" down. Market analysts interpreted Powell's comments as indicating that the overall message has not changed significantly. The February inflation data meets the Fed's expectations and aligns with the view that the Fed will take action once more data is available. The Fed's current stance suggests a willingness to cut rates by mid-year, contingent upon gaining more confidence and several months of additional data.
Non-USD Currencies Rise as DXY Retreats
The retreat in the DXY led to a widespread increase in non-USD currencies on Friday. The euro (EUR) rebounded from a more than month-long low, while the Japanese yen (JPY) averted the risk of sliding towards the 1990-era low of 152.00 hit on Thursday. Although the DXY pulled back from its mid-February high reached Thursday, it maintained its upward momentum for the month, continuing a trend of monthly gains since the beginning of 2024. Bitcoin's (BTC) rebound was short-lived, falling back below $70,000 intraday but still up over $20,000 year-to-date.
Swiss Franc Interest Rate Cut Triggers Global Central Bank Rate Cut Expectations
The unexpected interest rate cut by the Swiss National Bank earlier this month has raised expectations of a global central bank race to lower rates. Some analysts believe that the recent strength of the US dollar has been driven by the sell-off in developed market currencies such as the Swiss franc and the Japanese yen. Even as central banks around the world shift towards cutting rates, real yields in the United States are likely to remain relatively elevated as the Fed is expected to take a more cautious approach than currently priced in by the market.
US Dollar Index Logs Three Straight Monthly Gains, Non-USD Currencies Post Daily Gains After PCE Release
US Dollar Index (DXY)
The ICE US Dollar Index (DXY), which measures the value of the US dollar against a basket of six major currencies including the euro, gained early in the Asian trading session and maintained its upward trajectory until before the European stock market opened. The index topped 104.60 before the European stock market opened, approaching the February 15th high of 104.70 reached on Thursday. It gained over 0.1% intraday but reversed course after the release of US PCE price data, falling from near 104.60 to a daily low below 104.40. The index lost over 0.1% intraday but subsequently recovered most of its losses.
At the time of the usual US stock market close on Friday, the DXY traded below 104.50. After resuming its upward trend on Thursday, the index declined by less than 0.1% during the day. For the week, the DXY gained a modest 0.05%, extending its three-week winning streak. The index rose by 0.3% in March and 3.1% in the first quarter.
Bloomberg US Dollar Spot Index
The Bloomberg US Dollar Spot Index, which tracks the US dollar's exchange rate against ten other currencies, gained over 0.1% for the second consecutive day. The index fell by less than 0.1% for the week but gained over 0.1% in March and nearly 2.7% in the first quarter. Both the DXY and the Bloomberg US Dollar Spot Index have logged three consecutive monthly gains and have rebounded in the first quarter after declining in the fourth quarter of last year. This marks the third quarter in the last four quarters where the indices have recorded a cumulative increase.
Non-USD Currencies
Following the release of US PCE data, the Japanese yen (JPY) saw a rapid increase in value. The USD/JPY pair fell below 151.20, marking a daily low. The euro (EUR) surged past 1.0800 against the US dollar, registering a daily gain of nearly 0.2%. This move lifted the euro from consecutive two-day lows below 1.0770 reached earlier in the European trading session and a February 20th low of 1.0770. The British pound (GBP) also extended its gains, briefly rising above 1.2640 for a daily high. The GBP gained nearly 0.2% intraday but did not approach its February 20th low of 1.2580, which it fell below last Friday.
During the US stock market trading hours, however, the JPY, EUR, and GBP gradually gave up their gains. By the time the US stock market closed, the EUR and GBP had posted modest daily gains, while the USD/JPY pair had declined slightly, trading above 151.30. It remained above the 1990-era high of 152.00 tested on Thursday.
Chinese Yuan
The offshore Chinese yuan (CNH) initially declined against the US dollar in the early Asian trading session, hitting a daily low of 7.2643. It quickly reversed course and maintained an upward trajectory. After the release of US PCE data, the gains accelerated. During the early hours of US stock market trading, the CNH reached a daily high of 7.2536, rising 103 pips from the daily low. The CNH did not continue to fall towards the intraday low of 7.28 reached on Monday, which was the lowest since November 13th, 2023. It later gave up some of its gains.
As of 4:59 AM Beijing time on March 30th, the offshore Chinese yuan traded at 7.2572 against the US dollar, up 51 pips from the New York close on Thursday. The CNH rebounded after two consecutive days of losses. It gained 189 pips for the week, reversing a two-week losing streak. This marked the fourth weekly gain in the seven weeks since the start of the Lunar New Year. The CNH lost 494 pips in March, marking three consecutive months of declines. The currency has declined by a cumulative 1314 pips in the first quarter after rebounding in the fourth quarter of last year.
Bitcoin Breaks Below $70,000 Intraday, Remains Up Over 10% in March
Bitcoin (BTC)
Bitcoin (BTC) briefly rose above $71,000 in the early Asian trading session, marking a daily high. It quickly fell below $71,000 and, during the early hours of US stock market trading, dropped below $70,000. On some platforms, BTC fell to below $69,100, marking a daily low. The drop of around $2,000 or nearly 3% from the daily high prevented BTC from approaching the March 14th high of $7.16
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