The broad dollar rally continued last week on stronger than expected U.S. data. Fed repricing has been violent, with easing expectations pushed further out. JPY, NZD, and CHF outperformed while SEK, EUR, and AUD underperformed. U.S. data this week should show that the labor market remains in good shape and that consumption remains robust, which should help the dollar gain further.

AMERICAS

Fed easing expectations continue to adjust. Odds of a June cut have fallen to 30% vs. 60% last week, while odds of a July cut have fallen to 66% vs. fully priced in last week. The market now sees the first cut coming in September and only 85% odds that we get a second cut in December. Yields at the short end of the U.S. curve continue to rise on revised Fed expectation, while yields at the long end continue to rise on elevated inflation risks. This rise was interrupted Friday by some safe haven bid stemming from Iran-Israel tensions. However, both ends should resume rising, giving further fuel to the dollar rally.

After some softening in tone ahead of the CPI data, Fed officials rightfully turned more cautious ahead of the weekend. Schmid said there is reason to think that rates will stay higher for longer. He prefers to be patient, not preemptive, and said the Fed needs clear and convincing evidence on inflation to cut. Collins now sees the Fed cutting later than previously thought, adding that she still sees two cuts this year whilst warning that she “wouldn’t put a lot of weight on any number.” Collins stressed that a rate hike is not part of her baseline as she anticipates inflation will continue to ease. Daly said “There’s absolutely, in my mind, no urgency to adjust the policy rate. Policy is in a good place right now, and I need to be fully confident that inflation is on track to come down to 2% - which is our definition of price stability - before we would consider a rate cut.”

There are many Fed speakers this week. Logan, Williams, and Daly speak Monday. Jefferson, Williams, Barkin, and Powell speak Tuesday. Mester and Bowman speak Wednesday. Bowman (twice), Williams, and Bostic (twice) speak Thursday. Goolsbee speaks Friday. At midnight Friday, the media blackout for the April 30-May 1 FOMC meeting begins and we will have no Fed speakers until Chair Powell’s post-decision press conference the afternoon of May 1.

The Fed releases its Beige Book report Wednesday. The Beige Book is being prepared for the April 30-May 1 FOMC meeting and is expected to show again that the U.S. economy remains in a healthy state. The previous Beige Book in March noted that the outlook for future economic growth remained generally positive, with contacts noting expectations for stronger demand and less restrictive financial conditions over the next 6-12 months. It will be interesting to see if the updated view on prices is consistent with recent elevated CPI prints. The March Beige Book highlighted that price pressures persisted, but several Districts reported some degree of moderation in inflation.

Data highlight will be March retail sales Monday. Headline is expected at 0.4% m/m vs. 0.6% in February, while ex-autos is expected at 0.5% m/m vs. 0.3% in February. The so-called control group used for GDP calculations is expected at 0.4% m/m vs. 0.0% in February. Overall, consumer spending remains resilient, supported by robust demand for labor and positive real wage growth.

Q1 growth remains robust. Official data will be out next week with consensus currently at 2.0% SAAR. The New York Fed’s Nowcast model is tracking Q1 growth at 2.2% SAAR and Q2 growth at 2.6% SAAR and is updated every Friday. Elsewhere, the Atlanta Fed’s GDPNow model is tracking Q1 growth at 2.4% SAAR and will be updated Monday after the data. We think this all boils down to the U.S. labor market. As long as jobs are being created, both consumption and growth will remain strong, and firms will be able to pass on higher costs to consumers. When all is said and done, we suspect the Fed will discover that disinflation will stall out without significant weakening of the labor market. Stay tuned.

Housing data will be closely watched. April NAHB housing market index will be reported Monday and is expected to remain steady at 51. March building permits and housing starts will be reported Tuesday and are expected at -0.9% m/m and -2.6% m/m, respectively. March existing home sales will be reported Thursday and are expected at -4.1% m/m vs. 9.5% in February.

Weekly jobless claims Thursday will be closely watched. That’s because the initial claims reading will be for the BLS survey week containing the 12th of the month. These are expected at 215k vs. 211k last week. Continuing claims are reported with a one-week lag, and these are expected at 1.818 mln vs. 1.817 mln last week. There's no Bloomberg consensus yet for April NFP but its whisper number stands at 225k vs. 303k actual in March.

Regional Fed surveys for April start rolling out. Empire manufacturing survey kicks things off Monday and is expected at -5.0 vs. -20.9 in March. New York Fed services index will be reported Tuesday. Philly Fed manufacturing index will be reported Thursday and is expected at 2.3 vs. 3.2 in March. February IP will be reported Tuesday and is expected at 0.4% m/m vs. 0.1% in January.

February TIC data will be reported Wednesday. The data should show that underlying demand for USD-denominated assets remains robust. Net foreign purchases of long-term U.S. securities totaled USD1.035 trln in the twelve months through January, more than offsetting the cumulative trade deficit of USD777 bln for the same period. Of note, both Japan and China have been increasing their UST holdings in recent months.

Canada highlight will be March CPI Tuesday. Headline is expected to pick up a tick to 2.9% y/y. If so, it would reverse last month’s drop and move further above the 2% target. Core trim is expected to remain steady at 3.2% y/y, while core median is expected to fall a tick to 3.0% y/y. The Bank of Canada projects inflation to average 2.8% y/y in Q1 and 2.9% in Q2. Overall, disinflation continues, leaving room for the BOC to start easing as early as June. The market sees 60% odds of a 25 bp cut in June and becomes fully priced in July. Governor Macklem holds a fireside chat Tuesday.

EUROPE/MIDDLE EAST/AFRICA

Reports emerged that a larger group initial favored cutting rates at this meeting. However, some then joined the majority that favored waiting until the June meeting, as stronger than expected inflation in the U.S. made ECB policymakers more cautious. Reports suggested this group may have been trying to set the table for back-to-back cuts in June and July. Indeed, Stournaras continues to push for four cuts this year. For now, three cuts are priced in this year, with over 50% odds of fourth cut. We expect the hawks and the doves to continue battling for control of the narrative. Simkus, Lane, and de Cos speak Monday. Rehn, Villeroy, and Vujcic speak Tuesday. Cipollone, de Cos, Schnabel, and Lagarde speak Wednesday. Guindos, Nagel, Centeno, Simkus, and Vujcic speak Thursday. Nagel speaks Friday.

Eurozone data calendar is limited this week. February eurozone IP will be reported Monday and is expected at 0.8% m/m vs. -3.2% in January. Trade data will be reported Tuesday. Current account data will be reported Thursday. Germany reports April ZEW expectations Tuesday. Expectations component is expected at 35.5 vs. 31.7 in March, while current situation is expected at -76.0 vs. -80.5 in March.

U.K. reports labor market data Tuesday. Labor market conditions continue to ease to some degree but not by enough to justify looser BOE policy settings. The unemployment rate is expected to rise a tick to 4.0% for the three months ending in February, which is still below the Bank of England’s medium-term equilibrium level of around 4.5%. Total average weekly earnings are expected to fall a tick to 5.5% y/y during the same period, while earnings ex-bonuses are expected at 5.8% vs. 6.1% previously.

U.K. reports March CPI Wednesday. Headline is expected at 3.1% y/y vs. 3.4% in February, core is expected at 4.1% y/y vs. 4.5%, and CPIH is expected at 3.6% y/y vs. 3.8% in February. If so, headline would be lowest since September 2021 but still well above the 2% target. Services inflation is expected to remain quite high at 5.8% y/y vs. 6.1% in February and so the BOE will remain cautious.

U.K. reports March retail sales Friday. Headline is expected at 0.3% m/m vs. 0.0% in February, ex-automotive fuel is expected at 0.3% m/m 0.2% in February. Both y/y rates are expected to pick up to 1.0%, which would both be the strongest since March 2022. Overall, positive real wage growth, a recovery in housing market activity, and improving consumer confidence point to a favorable household spending outlook.

Bank of England expectations have remained fairly steady. The first cut is fully priced in for August, but with two cuts total seen in 2024 vs. three cuts seen earlier this month. There will be plenty of BOE speakers this week. Breeden speaks Monday. Governor Bailey and Deputy Governor Lombardelli speak Tuesday. Greene, Bailey, and Haskel speak Wednesday. Ramsden and Mann speak Friday.

ASIA

Japan highlight will be March national CPI Friday. Headline is expected to remain steady at 2.8% y/y, while core (ex-fresh food) is expected to fall a tick to 2.7% y/y. If so, core would back towards the 2% target. Core ex-energy is expected to fall two ticks to 3.0% y/y. Reports suggest the BOJ may raise its inflation forecast for FY2024 from 2.4% currently at the upcoming April 25-26 meeting. FY26 will be added to the forecast horizon and reports suggest the bank’s forecast will be around 2%.

Bank of Japan tightening expectations remain mild. The market continues to price in only around 50 bp of tightening over the next three years. Until these expectations shift, monetary policy divergences with the Fed will likely keep upward pressure on USD/JPY. The pair trade as high as 153.40 last week but the move higher has been slow due to FX intervention risks. Board member Noguchi speaks Thursday.

March trade data will be reported Wednesday. Exports are expected at 7.0% y/y vs. 7.8% in February and imports are expected at -4.7% y/y vs. 0.5% in February. If so, exports would be the weakest since November and suggests regional trade and activity remain at risk. On the other hand, weakness in imports would suggest that domestic activity is slowing.

Australia highlight will be March jobs data Thursday. Consensus sees 10.0k jobs added vs. 116.5k in February, while the unemployment is seen rising two ticks to 3.9%. If so, this would remain below the lower end of the RBA’s estimated full employment range of 4.0-5.75%. The forward-looking Westpac-Melbourne Institute Unemployment Expectations Index shows that more consumers expect unemployment to fall over the year ahead. Further evidence of tight labor market conditions could further curtail expectations of RBA rate cuts this year. For 2024, the market is pricing only 25 bp of RBA easing vs. nearly 50 bp earlier this month.

New Zealand highlight will be Q1 CPI data Wednesday. Headline is expected to pick up a tick to 0.6% q/q, while the y/y rate is expected to fall to 4.0% vs. 4.7% in Q4. If so, this would be the lowest y/y rate since Q2 2021 but still well above the 2% target. Headline CPI is expected to be driven by non-tradeable CPI inflation of 1.3% q/q that’s offset by tradeable CPI deflation of -0.2% q/q. The RBNZ forecasts Q1 CPI at 0.4% q/q and 3.8% y/y. The market is pricing in the first rate cut in October, with nearly 50 bp of total easing priced in this year.