The broad dollar rally continued last week. CHF, CAD, and EUR outperformed while NOK, NZD, and JPY underperformed. Strong U.S. data and more hawkish Fed expectations remain in play this week, while market sentiment remains very fragile. This backdrop should keep the dollar bid.

AMERICAS

The Fed media blackout went into effect at midnight Friday. The market often softens its Fed expectations during this quiet period. However, the Fed has been sending a consistently hawkish message in recent weeks and markets would do well not to forget that. Odds of a June cut have fallen below 20%, while odds of a July cut have fallen below 50%. Even a September cut is not fully priced in, with odds falling below 90%.

March PCE data Friday will be the data highlight. Headline PCE inflation is expected to rise a tick to 2.6% y/y while core is expected to fall a tick to 2.7% y/y. Of note, momentum in underlying inflation has picked up as the 3- and 6-month annualized change in core PCE are running at 3.5% and 2.9% in February, respectively. The Cleveland Fed’s inflation Nowcast model estimates both headline and core PCE rose 2.7% y/y in March. Looking ahead to April, the model shows headline at 2.6% and core at 2.7% and so price pressures remain persistent.

Personal income and spending will be reported at the same time. Income is expected at 0.5% m/m vs. 0.3% in February while spending is expected at 0.6% vs. 0.8% in February. Real spending is expected at 0.3% m/m vs. 0.4% in February. We see upside risks to the spending numbers following the 1.1% m/m and 5.2% y/y surge in control group retail sales.

Chicago Fed reports its March National Activity Index Monday. Headline is expected at 0.09 vs. 0.05 in January. If so, the 3-month moving average would rise to -0.13 vs. -0.18 in January and move further from the -0.7 threshold that signals recession.

S&P reports its preliminary April PMIs Tuesday. Manufacturing is expected at 52.0 vs. 51.9 in March, services is expected at 52.0 vs. 51.7 in March, and the composite is expected at 52.0 vs. 52.1 in March. The more widely watched ISM PMIs won’t be reported until next week.

Q1 GDP data will be reported Thursday. Growth is expected at 2.5% SAAR vs. 3.4% in Q4 2023, with personal consumption the main growth driver at 2.8% SAAR. PCE is expected at 3.0% vs. 1.6% in Q4, while core PCE is expected at 3.4% vs. 2.0% in Q4.

The risks to growth are skewed to the upside. The Atlanta Fed GDPNow model is tracking Q1 growth at 2.9% SAAR and its final read will be released Wednesday, followed by its initial Q2 estimate Friday. The New York Fed GDP nowcast model’s final estimate for Q1 growth was 2.2% SAAR. This model sees Q2 growth at 2.8% SAAR and will be updated Friday. Its initial estimate for Q3 will come in early June.

Regional Fed surveys for April will continue to roll out. Philly Fed non-manufacturing will be reported Tuesday. Richmond Fed reports both manufacturing and services Tuesday. Kansas City manufacturing will be reported Thursday, followed by Kansas City services Friday.

Bank of Canada releases the summary of its deliberations Wednesday. Recall, the BOC left rates steady at 5.0% at the April 10 meeting. Governor Macklem did not rule out a June rate cut, noting it was “in the realm of possibilities”. Otherwise, it was a neutral hold because the BOC is still concerned that lowering policy interest rate too early or cut too fast could jeopardize the progress on inflation. It lowered its Q1 2024 CPI inflation forecast to 2.8% vs. 3.2% previously but still saw inflation reaching 2% by Q4 2025. Lastly, the BOC raised its estimate of the nominal neutral interest rate by 25 bp to a range of 2.25% to 3.25%.

Canada data highlight will be February retail sales Wednesday. Statistics Canada’s advanced retail indicator suggests sales rose 0.1% m/m in February following a -0.3% decline in January. Of note, sales ex-autos are expected flat m/m vs. 0.5% in January. Going forward, the Bank of Canada projects population growth to boost consumer spending in the first half of 2024.

EUROPE/MIDDLE EAST/AFRICA

Eurozone data highlight will be preliminary April PMIs Tuesday. Headline manufacturing is expected at 46.5 vs. 46.1 in March, services is expected at 51.8 vs. 51.5 in March, and the composite is expected at 50.7 vs. 50.3 in March. If so, this would be the highest composite reading since May 2023. Looking at the country breakdown, the German composite is expected at 48.5 vs. 47.7 in March and the French composite is expected at 48.9 vs. 48.3 in March. Italy and Spain will be reported with the final April readings due out in early May.

Germany IFO survey will be reported Wednesday. Headline is expected at 88.8 vs. 87.8 in March. If so, it would be the highest since May 2023. This rise would be driven by expectations rising to 88.9 vs. 87.5 in March and current assessment rising to 88.7 vs. 88.1 in March. Germany’s growth outlook has improved a little bit but it’s too soon to tell if the recovery will be sustained. German May GfK consumer confidence will be reported Thursday and is expected at -26.0 vs. -27.4 in April.

ECB reports March inflation expectations Friday. Median inflation expectations one year ahead fell from 3.3% in January to 3.1% in February, the lowest since February 2022, while median three-year ahead inflation expectations remain well-anchored at 2.5%. Both remain above the 2% target and so the ECB will be looking for further progress here.

March money supply data will be reported Friday. Broad money growth (M3) is expected at 0.5% y/y vs. 0.4% in February. If so, it would be the fourth straight month of positive growth and the strongest since June 2023.

Most ECB officials have signaled that the first cut will come in June. After that, there isn’t much agreement as the split between the hawks and doves remains in place. That said, it’s really a question of whether the ECB cuts three times this year or four, though we favor the latter. There are plenty of ECB speakers this week. Villeroy and Lagarde speak Monday. Panetta and Nagel speak Tuesday. De Cos, Nagel, Villeroy, Cipollone, and Schnabel speak Wednesday. Schnabel, Vujcic, Nagel, and Panetta speak Thursday. Centeno speaks Friday.

U.K. data highlight will be preliminary April PMIs Tuesday. Manufacturing is expected at 50.5 vs. 50.3 in March, services is expected at 53.0 vs. 53.1 in March, and the composite is expected at 52.7 vs. 52.8 in March. If so, it would be the second straight drop in the composite reading to the lowest since December.

CBI April surveys will also be reported. Industrial trends will be reported Monday, with total orders expected at -16 vs. -18 in March and selling prices expected at 20 vs. 21 in March. Distributive trades will be reported Thursday, with retailing reported sales expected at-3 vs. 2 in March. April GfK consumer confidence will also be reported Thursday and is expected at -20 vs. -21 in March.

Bank of England is expected to cut rates August 1. A second cut in December is fully priced in. Benjamin speaks Monday. Haskel and Pill speak Tuesday.

ASIA

Two-day Bank of Japan meeting ends Friday with an expected hold. We are sticking to our view that the BOJ tightening cycle will remain very modest. The market agrees and is pricing in only 20 bp of tightening in 2024 and 50 bp over the next two years. Such a modest cycle would likely keep upward pressure on USD/JPY. Of note, the yen tends to weaken on BOJ decision days. It has done so for eight straight and nine of the past ten.

Updated macro forecasts will be released. Reports emerged suggesting the BOJ may raise its inflation forecast for FY2024 from 2.4% currently at this meeting. However, March CPI data last week came in lower than expected and suggests falling price pressures, so the revision is likely to be minor. FY26 will be added to the forecast horizon and those same reports also suggest the bank’s forecast will be around 2%.

Japan data highlight will be April Tokyo CPI Friday. Headline is expected to fall a tick to 2.5% y/y, core ex-fresh food is expected to fall two ticks to 2.2% y/y, and core ex- energy is expected to fall two ticks to 2.7% y/y. If so, Tokyo core would be the lowest since January and would move closer to the 2% target.

Preliminary April PMIs Tuesday will also be important. The 51.7 composite reading in March was the highest since September but we believe the upward momentum will be hard to sustain.

Australia data highlight will be March and Q1 CPI Wednesday. Headline is expected to remain steady at 3.4% y/y for a fourth consecutive month. Q1 headline inflation is expected at 3.5% y/y vs. 4.1% in Q4. Elsewhere, Q1 trimmed mean inflation is expected at 3.8% y/y vs. 4.2% y/y in Q4. Overall, inflation is still above target but continues to moderate in line with the RBA’s latest forecasts. RBA projects annual headline and trimmed mean inflation to average 3.3% and 3.6% by end-June, respectively. The market is pricing in just one rate cut in 2024 vs. two earlier this month. PPI will be reported Friday.

Preliminary April PMIs Monday will also be important. The 53.3 composite reading in March was the highest since April 2022 but we believe the upward momentum will be hard to sustain.

New Zealand ANZ April consumer confidence will be reported Thursday. This measure of consumer confidence fell 9 points in March to a seven-month low of 86.4, pointing to a sluggish consumer spending outlook.