Fits and starts!
Major shifts in the economic landscape won't happen overnight, but rather in fits and starts - movement in rates, inflation and the outlook for Fed over the last few months - especially over the last week — fits that pattern.
Powell admitted (what we've been pointing out since long) that the pace of inflation is running too "hot" for Fed to have a reason for cutting rates anytime- however Powell still adds fuel to the "Fed pause with a promise of rate cuts" trade by maintaining the likely next step for policy is still rate cuts, not a hike (?)- validates the time tested theory that Fed is the last to the party and always reactive.
Beige Book says, “Overall economic activity expanded slightly on balance, since late Feb.” - note the word 'Slightly' - didn’t say ‘strong’- shows how mixed internals are.
10-year U.S. yield at 4.60%- up from 3.87% at the start of February - Apart from few weeks last fall, long-term rates have not been this high since 2007.
Weaker EUR amidst higher Oil prices limit ECB's ability to cut rates- however ECB speakers (Centeno & Nagel) spoke of June cut. Lagarde said explicitly that exchange rates matter & it leads to rotation higher- reason for EURUSD to push into swing area up to 1.0675 where it should stall.
0.786 of the Oct-Dec rise resilient support this week.
China’s industrial capacity utilisation hit lowest since 2020 in Q1. PBoC Governor Pan Gongsheng met with Powell - Both of them "exchanged" views-
Nascent signs of recovery besides gradual deceleration of services and domestic inflation reduce urgency for easing - hence BoE to switch sides to 'Higher for Longer' party. It’s all about USD - hence this down move targets 1.2369, 0.618% Oct-March rise, and then 1.2045 Oct 23 base.
Noguchi says essential for BoJ to maintain ultra-loose monetary policy & in the same vein reiterates Japan is seeing wage hikes unseen in the past via wage negotiations- this dichotomy is adequate to sustain yen weakness in spite of all intervention talk.
152.00 breakout stalls close to 155.20 Fibo
The markets are getting used to trading USDINR - buying the dips into 83.45 and selling into the rallies near 83.55.