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Weakening of the dollar due to expectations of US interest rate cuts
The US dollar fell against other major currencies.
“Weakening of the dollar due to expectations of US interest rate cuts based on the release of the US CPI index and the FOMC minutes”
The US dollar fell against other major currencies due to the release of the US CPI Consumer Price Index for March, which showed a greater-than-expected slowdown in the overall inflation rate. The FOMC minutes from the previous meeting were also released, which indicated that some FOMC members were considering stopping the interest rate hike after two bank collapses.
While the overall CPI index slowed to its lowest level since May 2021, dropping from 6.0% to 5.0% year-on-year, the core index surpassed the overall index for the first time since December 2020, supporting the view that the slowdown in price pressure in the overall index was due to unstable items such as energy costs.
As a result, the market seems to have priced in a 70% probability of an interest rate hike at the next FOMC meeting. However, given the 1% slowdown in the overall inflation index and the dovish content of the FOMC minutes, expectations for a rate cut of 0.5% or more by the end of the year have increased.
On the other hand, the ECB is expected to continue raising interest rates equivalent to 0.75% without cutting them by the end of the year, and the euro-dollar pair is expected to continue to rise. Some expect the euro to rise above 1.1035 against the US dollar and approach its high of 1.1175 set on March 31, 2022.
In addition, despite the release of the CPI and FOMC minutes, the US stock market closed in the red yesterday, with all three major indices ending lower. The S&P 500 soared immediately after the release of the CPI index but retreated after entering the key resistance zone of 4150, and continued to fall after the release of the FOMC minutes.
The minutes revealed concerns among FOMC members about the turmoil in banks, making it difficult to maintain a low-interest rate outlook as evidence of a calm recession in the second half of the year. The market will thus enter the first-quarter earnings season starting with major banks tomorrow.
Gold continued to rise as a safe haven, benefiting not only from the weakening of the dollar but also from a drop in US bond yields and concerns about the US economy. It is now approaching its high of $2,033 set on April 5 and is expected to rise to around $2,075, a record high set on August 7, 2020.
Meanwhile, the Bank of Canada maintained its interest rate and hawkish stance.
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