Dollar Soft as U.S. Returns from Holiday

February 20, 2024
  • After last week’s fireworks, this is a quiet data week for the U.S.; the strong U.S. economy has benefitted its neighbors; Canada highlight will be January CPI
  • ECB reported its indicator of negotiated wage settlements for Q4; eurozone reported December current account data; there was no new policy guidance from BOE officials
  • RBA minutes were released; China banks set their key Loan Prime Rates; government officials continue to jawbone the Bank of Thailand

The dollar is soft as the U.S. returns from holiday. DXY is trading modestly lower near 104.179 after trading flat for two straight days. The euro is trading higher near $1.08, helped by another huge current account surplus in December, while sterling is trading flat just below $1.26. USD/JPY is trading flat near 150.20. When all is said and done, recent developments support our view that the Fed is unlikely to cut rates anytime soon. The data continue to come in mostly firmer while Fed officials remain cautious about easing. We believe that the current market easing expectations for the Fed still need to adjust. When they do, the dollar should see further gains after this current period of consolidation.


After last week’s fireworks, this is a quiet data week for the U.S. February Philly Fed services index and January leading index will be reported today and are unlikely to have much market impact. Q1 growth estimates have been shaved after the weak retail sales data, but that doesn’t take away from the overall story of U.S. economic outperformance. The New York Fed’s Nowcast model is now tracking Q1 at 2.8% SAAR and will be updated Friday. Elsewhere, the Atlanta Fed’s GDPNow model is tracking Q1 at 2.9% SAAR and will be updated next Tuesday.

The strong U.S. economy has benefitted its neighbors. According to the IMF, Mexico grew 3.4% in 2023. Compare that to Peru (-0.6%), Chile (-0.5%), Colombia (0.6%), and Brazil (3.1%). Looking at the majors, Canada grew 1.1% in 2023 and compares favorably to Sweden (-0.7%) and Norway (0.5%), about the same as New Zealand (1.1%), and slightly worse than Australia (1.8%). Strong growth and persistent price pressures have led both Banco de Mexico and Bank of Canada to stake out relatively hawkish positions compared to their peers. It should be no surprise then that in terms of currency performance, MXN was the second-best EM performer in 2023 and remains there in 2024 YTD. In the majors, CAD was in the middle of the pack in 2023 but is now the second-best performer in 2024 YTD.

Canada highlight will be January CPI. Headline is expected at 3.3% y/y vs. 3.4% in December. If so, it would be the first deceleration since October. Elsewhere, core trim is expected to fall a tick to 3.6% while core median is expected to remain steady at 3.6% y/y. The Bank of Canada can be patient before cutting interest rates, as core inflation measures remain high and sticky in the range of 3.5-4.0%, driven in large part by rising rents. Canada’s OIS curve implies the first rate cut will be seen in July.


ECB reported its indicator of negotiated wage settlements for Q4. Wage settlements slowed to 4.5% y/y vs. the record high 4.7% in Q3. Furthermore, the ECB’s forward-looking wage trackers point to some further cooling of wage pressures. Rising wages have led some at the ECB to remain concerned about potential inflationary impulses in the economy. Despite the slowdown in the economy, eurozone unemployment is at a cycle low of 6.4% in December and so wage pressures may be persistent. ECB officials would probably like to see Q1 wage settlements (due out in May) before cutting rates, which points to June as the most likely choice. The market is pricing in less than 10% odds of a cut March 7, rising to 45% April 11 and fully priced in June 6.

Eurozone reported December current account data. The surplus widened to EUR31.9 bln in December vs. a revised EUR22.5 bln (was EUR24.6 bln) in November. The surplus was equivalent to 1.8% of GDP in the 12 months to December vs. 1.6% previously. This is the biggest current account surplus since March 2022 and puts upward pressure on the long-term fundamental value for the euro.

There was no new policy guidance from Bank of England officials. Governor Andrew Bailey and other MPC members testified at the Treasury Committee hearing on the February Monetary Policy Committee Report. Bailey noted that the economy is showing distinct signs of upturn and warned that inflation does not need to be at target before cutting interest rates. The market still sees basically no chance of a cut March 21, rising to almost 25% May 9 and over 60% June 20. A cut isn’t fully priced in until August 1.


RBA minutes were released. The minutes showed the bank considered whether to raise the cash rate by 25 bp or leave it unchanged. It opted to leave the cash rate at 4.35% because “the risk of inflation not returning to the Board’s target within a reasonable timeframe had eased.” Also, members agreed that it was important not “to rule in or out further increases in interest rates.” Australia’s Q4 Wage Price Index is the next domestic highlight due out tomorrow. In line with RBA forecasts, market participants anticipate wages to increase 0.9% q/q and 4.1% y/y. Strong wage growth will validate the RBA not ruling out further increase in interest rates and support AUD. Of note, the market is not pricing in the first cut until Q3.

China banks set their key Loan Prime Rates. The 1-year rate was kept steady at 3.45% while the 5-year rate was cut 25 bp to 3.95% vs. 10 bp expected. The PBOC just kept its key MLF rate steady at 2.5% over the weekend and so the cut in the 5-year rate is noteworthy. It is a reference rate for mortgage rates and so the larger than expected cut is clearly meant to boost the ailing property sector. Deflation deepened in January and weak aggregate demand suggests little relief in sight. While further monetary easing is likely in the coming months, it is unlikely to have much impact until the huge debt overhang is addressed.

Government officials continue to jawbone the Bank of Thailand. This time, it came right from the top as Prime Minister Srettha said that “I would like to implore the MPC to urgently call a committee meeting to consider reducing interest without waiting for a scheduled meeting.” Srettha also serves as Finance Minister and so the jawboning is doubly noteworthy for its inappropriateness. The bank just left rates steady February 7, but Srettha noted that “April is almost two months away, and I urge them to reconsider the decision.” While we tend to dislike such jawboning, the weak economy and deflation risks do warrant easier policy. The swaps market is pricing in the start of an easing cycle with a 25 bp cut at the April 10 meeting, followed by another cut in H2 that takes the policy rate down to 2.0%.

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. 2022. All rights reserved.

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

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

captcha image

Type in the word seen on the picture

I am a current investor in another jurisdiction