US
Yesterday’s rebound gave way to renewed risk aversion with no clear off-ramp to the Iran war. Crude oil prices are rallying, global equity and bond markets are down, and USD is pushing higher against most major currencies.
An energy shock with no end in sight, major central banks edging toward tightening despite weak growth, and rising borrowing costs hitting already stretched public finances are a brutal mix for risk assets. Until the fog of war clears, USD risks remain skewed to the upside driven by dollar funding needs in periods of financial market stress.
Expect US officials to step up jawboning today to manage risk sentiment. But Iran’s response to the US de-escalation pivot will ultimately decide whether peak risk aversion is behind us or still ahead. Worrisomely, Iran has both the capability and the incentive to destabilize global markets and impose as much economic/political pain on the US and its allies.
Meanwhile, Axios reported this morning that the US is developing military options for a “final blow” in Iran that could include the use of ground forces and a massive bombing campaign.
US weekly jobless claims data is due today and a handful of Fed governors speak (Cook, Miran, Jefferson, Barr).
NORWAY
NOK rallied across the board after the Norges Bank delivered a hawkish hold. The bank left the policy rate unchanged at 4.00% (widely expected) and flipped from an easing to a tightening bias. Interestingly, the Committee discussed whether the policy rate should be raised already at this meeting.
The Norges Bank highlighted “the inflation outlook implies that it will likely be appropriate to raise the policy rate at one of the forthcoming monetary policy meetings.” The bank’s new policy rate path has been revised up from a -25bps cut to between +25bp and +50bps of hikes by the end of this year. The swaps curve price-in 60bps of hikes in the next twelve months.
NOK can keep outperforming the longer this energy price shock persists. Norway gets the terms of trade boost and has fiscal space to absorb some of the growth drag to domestic demand.
JAPAN
USD/JPY is firmer just under 160.00. The Bank of Japan (BOJ) published a set of underlying CPI indicators that will be released two business days after the official CPI. Trimmed mean, weighted median, and mode inflation are below the bank’s 2% target. While the three measures of CPI excluding institutional factors (like changes to consumption tax) are converging towards 2%. The data is consistent with the BOJ’s gradual normalization path.
The BOJ’s next policy rate decision is on April 28 and will include the Outlook Report. Our base case is for the BOJ to deliver a 25bps rate hike to 1.00% at that meeting (66% priced-in) given Japan’s positive output gap (0.45% in Q3 2025) and solid results from the latest spring wage talks.
PHILLIPINES
USD/PHP is on the cusp of breaking to new highs on broad USD strength and surging crude oil prices. Philippines central bank (BSP) left the policy rate at 4.25% in an off-cycle meeting today. The next rate-setting meeting will be as scheduled on April 23 but “in light of fast-changing developments and uncertain economic conditions” the Monetary Board met today. BSB has slashed rates by a total of 225bps since the easing cycle started in August 2024, with the most recent 25bps cut delivered at the last February 18 meeting.
BSP stressed that raising the policy rate at this time (due to upside risk to inflation) would delay the recovery in economic activity. But Governor Eli Remolona signaled that the bank will be forced to raise interest rate if oil hits $200 a barrel. Remolona also shrugged off the weakness in the peso noting “so far, it hasn’t merited heavy intervention…the weaker peso seems to help the country’s exports and narrow the current-account deficit.”
SOUTH AFRICA & MEXICO
USD/ZAR is testing key resistance at its 200-day moving average (17.0654). South African Reserve Bank (SARB) is widely expected to keep the policy rate at 6.75% for a second straight meeting (1:00pm London, 9:00am New York). The swaps curve went from pricing in -50bps of cuts before the start of the Iran war on February 27 to +75bps of hikes in the next twelve months.
Mexico’s central bank is seen keeping the policy rate unchanged at 7.00% for a second straight meeting (7:00pm London, 3:00pm New York). However, it’s a close call: 16 of the 31 analysts polled by Bloomberg see a hold, the rest have a 25bps cut penciled in. The swaps curve went from pricing in nearly -50bps of cuts before the start of the Iran war on February 27 to +75bps of hikes in the next twelve months.
