Dollar Firm as Risk Off Impulses Start Eventful Week

March 31, 2025
  • Reciprocal tariffs may be universal; March Chicago PMI and Dallas Fed manufacturing survey will be reported; the growth outlook is still diverging; Colombia is expected to keep rates steady at 9.5%
  • Eurozone March CPI readings continue to roll out; the eurozone disinflationary process remains well on track
  • Japan’s GPIF confirmed it will maintain its current portfolio composition for the next five years; Japan real sector data for February were mostly softer; New Zealand March ANZ business confidence was mixed; China reported firm official March PMIs

The dollar is firm as an eventful week starts with a risk off vibe. DXY is trading higher near 104.134 after two straight down days as more tariff threats (see below) rattles global markets. The yen and Swiss franc are also outperforming, with USD/JPY trading lower near 149.30 and EUR/CHF trading lower near 0.95315. Both the euro and sterling are trading lower near $1.0815 and $1.2930, respectively. This is a huge week for the markets. Not only do we get a slew of key U.S. and eurozone data, but also perhaps some clarity on U.S. trade policy. There are also plenty of Fed speakers, culminating in Chair Powell’s speech Friday. Markets will be looking for confirmation that U.S. exceptionalism is over, but we are not so quick to bury this theme. Stay tuned.

AMERICAS

Reciprocal tariffs may be universal. Specifically, President Trump said “You’d start with all countries, so let’s see what happens. I haven’t heard a rumor about 15 countries, 10 or 15.” He added that “We’re going to be much nicer than they were to us, but it’s substantial money for the country.” Last week, it was reported that the U.S. would initially target the so-called “Dirty 15” but we really won’t know the whole story until Wednesday.

March Chicago PMI will be reported. Headline is expected to fall half a point to 45.0. This series has not correlated with the national readings for the past several years and so offers little insight into the ISM PMIs out later this week. Manufacturing will be reported tomorrow and headline is expected at 49.5 vs. 50.3 in February. Services will be reported Thursday and headline is expected at 53.0 vs. 53.5 in February.

March Dallas Fed manufacturing survey will also be reported. Headline is expected at -5.0 vs. -8.3 in February. So far, these surveys have come in on the weak side.

The growth outlook is still diverging. The New York Fed Nowcast model estimates Q1 growth at 2.9% SAAR and Q2 growth at 2.6% SAAR and will be updated Friday. Contrast this with the Atlanta Fed GDPNow model, which estimates Q1 at a whopping -2.8% SAAR and will be updated tomorrow after the data. When adjusted for trade in gold, its Q1 estimate improves to -0.5% SAAR. Due to different statistical methodology, the Atlanta Fed model tends to react more to individual data points and is more volatile than the New York Fed model. Q1 draws to a close this week but we won’t get official GDP data until April 30.

Colombia central bank is expected to keep rates steady at 9.5%. However, the market is split as about a third of the analysts polled by Bloomberg look for a 25 bp cut to 9.25%. At the last meeting January 31, the bank delivered a hawkish surprise and kept rates steady at 9.5% vs. an expected 25 bp cut. It was a split 5-2 vote, with the two dissents in favor of 25 bp and 50 bp cuts. The bank cited “fiscal uncertainty and a volatile exchange rate” as reasons for the hold, adding that “External financial conditions have tended to become more restrictive with the new US government’s policies on trade, energy and migration, which could have inflationary effects.” Since then, inflation has come in higher than expected and so we look for steady rates today. Central bank minutes will be released Thursday. Of note, the swaps market is pricing in 100 bp of easing over the next 12 months.

EUROPE/MIDDLE EAST/AFRICA

Eurozone March CPI readings continue to roll out. Italy’s EU harmonized inflation came in three ticks higher than expected at 2.1% y/y vs. 1.7% in February. Germany reports later today and is expected to fall two ticks to 2.4% y/y. German state data reported so far have been mixed. Eurozone-wide readings will be out tomorrow. Headline is expected to fall a tick to 2.2% y/y and core is expected to fall a tick to 2.5% y/y. The country prints for March released last week point to some downside risks. France came in two ticks lower than expected at 0.9% y/y and remained steady from February while Spain came in seven ticks lower than expected at 2.2% y/y vs. 2.9% in February.

The eurozone disinflationary process remains well on track. Recent comments from a handful of ECB policymakers suggests the decision to cut or a pause in April will be live. However, markets are pricing in about 85% odds of a 25 bp cut to 2.25% at the next meeting April 17. We fully expect the ECB to deliver a cut next month to preempt the drag to growth from U.S. tariffs. Still, looser fiscal policy in Germany and the EU’s military build-up plan lessens the need for the ECB to cut rates more than is currently priced in (roughly 50 bp of total easing over the next 12-months but now with over 50% odds of another 25 bp cut).

ASIA

Japan’s Government Pension Investment Fund confirmed it will maintain its current portfolio composition for the next five years. GPIF has a 25% asset allocation across domestic and foreign stocks and bonds. However, the deviation limits to the target allocation will be narrower at +/-5 to 6% vs. +/-6 to 8% previously, depending on the asset class. The implications for JPY are negligible and supports our view that the modest BOJ tightening cycle is unlikely to bring home a wave of Japanese cash from abroad. Of note, the Nikkei 225 has entered a technical correction after falling -4.1% today.

Japan real sector data for February were mostly softer. IP came in at 0.3% y/y vs. 1.2% expected and 2.2% in January, retail sales came in at 1.4% y/y vs. 2.5% expected and a revised 4.4% (was 3.9%) in January, and housing starts came in at 2.4% y/y vs. -2.2% expected and -4.6% in January. Q1 Tankan report out tomorrow should show that the business outlook is weakening for the most part.

New Zealand March ANZ business confidence was mixed. Business confidence fell nearly a point to 57.5, while expected own activity rose to 48.6 vs. 45.1 in February. Reported past activity, which has the best correlation to GDP, improved 3.7 points to 0.8 and remains indicative of a soft recovery in economic activity. The RBNZ has penciled in another 75 bp of easing over the next 12 months that would see the policy rate bottom at 3.00%. This is roughly in line with market pricing.

China reported firm official March PMIs. Manufacturing came in a tick higher than expected at 50.5 vs. 50.2 in February, while non-manufacturing came in two ticks higher than expected at 50.8 vs. 50.4 in February. As a result, the composite rose three ticks to 51.4. Caixin reports its manufacturing PMI tomorrow and is expected to fall two ticks to 50.6. It then reports its services and composite PMIs Thursday and is expected to pick up a tick to 51.5. The economic data have been stabilizing in recent months but the cautious nature of stimulus measures seen so far argue against a strong rebound in 2025.

Brown Brothers Harriman & Co. (“BBH”) may be used as a generic term to reference the company as a whole and/or its various subsidiaries generally. This material and any products or services may be issued or provided in multiple jurisdictions by duly authorized and regulated subsidiaries.This material is for general information and reference purposes only and does not constitute legal, tax or investment advice and is not intended as an offer to sell, or a solicitation to buy securities, services or investment products. Any reference to tax matters is not intended to be used, and may not be used, for purposes of avoiding penalties under the U.S. Internal Revenue Code, or other applicable tax regimes, or for promotion, marketing or recommendation to third parties. All information has been obtained from sources believed to be reliable, but accuracy is not guaranteed, and reliance should not be placed on the information presented. This material may not be reproduced, copied or transmitted, or any of the content disclosed to third parties, without the permission of BBH. All trademarks and service marks included are the property of BBH or their respective owners.© Brown Brothers Harriman & Co. 2024. All rights reserved.

As of June 15, 2022 Internet Explorer 11 is not supported by BBH.com.

Important Information for Non-U.S. Residents

You are required to read the following important information, which, in conjunction with the Terms and Conditions, governs your use of this website. Your use of this website and its contents constitute your acceptance of this information and those Terms and Conditions. If you do not agree with this information and the Terms and Conditions, you should immediately cease use of this website. The contents of this website have not been prepared for the benefit of investors outside of the United States. This website is not intended as a solicitation of the purchase or sale of any security or other financial instrument or any investment management services for any investor who resides in a jurisdiction other than the United States1. As a general matter, Brown Brothers Harriman & Co. and its subsidiaries (“BBH”) is not licensed or registered to solicit prospective investors and offer investment advisory services in jurisdictions outside of the United States. The information on this website is not intended to be distributed to, directed at or used by any person or entity in any jurisdiction or country where such distribution or use would be contrary to law or regulation. Persons in respect of whom such prohibitions apply must not access the website.  Under certain circumstances, BBH may provide services to investors located outside of the United States in accordance with applicable law. The conditions under which such services may be provided will be analyzed on a case-by-case basis by BBH. BBH will only accept investors from such jurisdictions or countries where it has made a determination that such an arrangement or relationship is permissible under the laws of that jurisdiction or country. The existence of this website is not intended to be a substitute for the type of analysis described above and is not intended as a solicitation of or recommendation to any prospective investor, including those located outside of the United States. Certain BBH products or services may not be available in certain jurisdictions. By choosing to access this website from any location other than the United States, you accept full responsibility for compliance with all local laws. The website contains content that has been obtained from sources that BBH believes to be reliable as of the date presented; however, BBH cannot guarantee the accuracy of such content, assure its completeness, or warrant that such information will not be changed. The content contained herein is current as of the date of issuance and is subject to change without notice. The website’s content does not constitute investment advice and should not be used as the basis for any investment decision. There is no guarantee that any investment objectives, expectations, targets described in this website or the  performance or profitability of any investment will be achieved. You understand that investing in securities and other financial instruments involves risks that may affect the value of the securities and may result in losses, including the potential loss of the principal invested, and you assume and are able to bear all such risks.  In no event shall BBH or any other affiliated party be liable for any direct, incidental, special, consequential, indirect, lost profits, loss of business or data, or punitive damages arising out of your use of this website. By clicking accept, you confirm that you accept  to the above Important Information along with Terms and Conditions.

 
1BBH sponsors UCITS Funds registered in Luxembourg, in certain jurisdictions. For information on those funds, please see bbhluxembourgfunds.com



captcha image

Type in the word seen on the picture

I am a current investor in another jurisdiction