The US dollar has improved its performance while equity markets exhibit a slight softening, influenced by the Federal Reserve’s resistance to early easing and renewed attention on US regional banks.
In Europe, the prevailing narrative centres around subdued CPI trends and a less assertive stance from the Bank of England, contributing to the overall strength of the dollar across various fronts.
The Federal Reserve’s stance against an immediate cut in March has led to a marginal uptick in short-dated US rates, lending support to the dollar. The Fed’s message underscores a movement towards a more balanced state between inflation and growth, signalling potential future rate cuts, contingent on additional data to instil confidence in initiating the cycle. Notably, the focus shifts to key dates in February, with annual CPI benchmarks revisions on the 9th and the January CPI release on the 13th capturing the attention of both the Fed and investors.
US regional banks, particularly highlighted by the significant decline in New York Community Bancorp’s (NYCB) stock following disappointing quarterly earnings, have emerged as a point of concern. The connection between substantial loan loss provisions and the Commercial Real Estate sector raises questions about the robustness of the US economic narrative.
This development coincides with the imminent expiration of the Fed’s emergency Bank Term Funding Programme (BTFP) on March 11, prompting investors to scrutinize the situation closely. Optimists anticipate that regulatory bodies, including the FDIC, would not have permitted NYCB to acquire the assets of the failed Signature Bank unless it was financially sound.
Looking ahead in the US, the focus turns to initial claims and ISM manufacturing data for the day. While these factors are unlikely to exert significant influence on the market, the Dollar Index (DXY) is anticipated to continue its gradual ascent toward the upper bounds of the 104.5-105 range, with the much stronger US Nonfarm Payrolls (NFP) released on last Friday this is expected to be the primary market driver, for at least the day ahead as it gets factored in.
Market commentary and analysis from Luca Santos, currency analyst at ACY Securities
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