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Dollar Steamrolls Higher on Crumbling Rate Cut Bets 

Currency markets are retreating in the face of yet another dollar onslaught after Jerome Powell again warned markets not to expect a rate cut at the Federal Reserve’s March meeting, adding to Friday’s hotter-than-expected non-farm payrolls report in driving yields higher.

Ten-year Treasury yields jumped almost 7 basis points higher and odds on a May rate cut fell to 70 percent when Chair Powell doubled down on comments made during last week’s post-decision press conference in an interview with CBS News ‘60 Minutes’ programme. In the appearance, aired last night, Powell warned that it was unlikely officials would reach the appropriate “level of confidence” on inflation to begin easing policy in March. “The danger of moving too soon is that the job’s not quite done, and that the really good readings we’ve had for the last six months somehow turn out not to be a true indicator of where inflation’s heading,” he said. “We don’t think that’s the case. But the prudent thing to do is to just give it some time and see that the data continue to confirm that inflation is moving down to 2 percent in a sustainable way”.

Friday’s astonishingly strong jobs number could ultimately get revised down – seasonal and weather-related distortions have played havoc with January data for many years. But revisions to prior months show momentum rebounding toward the end of 2023, confirming other data showing a recovery in consumer and business confidence, while also pointing to continued resilience in aggregate economic demand.

The greenback is up a full percentage point relative to the levels that prevailed ahead of last week’s Fed decision, bringing year-to-date gains to more than 3 percent, and demolishing year-end consensus bets on a period of underperformance.

Global markets are still ignoring extreme turbulence on Chinese equity bourses. A pledge of support from the China Securities Regulatory Commission reversed a rout in small- and mid-cap stocks last night, but most indices are still down dramatically as the property sector unwind continues and collateral worries resurface. Markets elsewhere are largely insulated by capital controls, which prevent the smooth movement of cash across Chinese borders, and by the extent to which the country’s lopsided growth model subtracts from global demand.

Ahead today: The Institute for Supply Management’s services index for January will land later this morning, with the consensus expecting a small improvement relative to December’s report. S&P Global will release its final January services purchasing manager index print. And the Fed will publish its fourth-quarter senior loan officer survey, shedding more light on the evolution of credit conditions in the US economy.

There are no first-tier data releases on the agenda for the week ahead in the United States, and the calendar is fairly light elsewhere as well. The Reserve Bank of Australia is likely to stay on hold this evening, the Bank of Mexico will almost certainly do the same Thursday, and Canada will release its latest jobs numbers on Friday. But a raft of speeches and appearances from central bank officials should keep the noise level in markets at a dull roar.

Please note: I will be on vacation from the 9th to the 19th, and the Morning Market Brief will resume on the 20th. I apologize for any inconvenience, and trust that markets will remain quiet throughout. Ahem.

Still Ahead


January’s services survey from the Institute for Supply Management should remain firmly in expansionary territory even as it exhibits the typical post-holiday case of Seasonal Affective Disorder. Markets expect the index to rise to 52.4 from December’s 50.6, but a softer reading wouldn’t come as a total shock – higher-frequency spending data has showed signs of slowing momentum. (10:00 EDT)

The Reserve Bank of Australia is highly likely to leave its cash rate unchanged in February, but could follow its global counterparts by shifting policy guidance in a more neutral direction after growth and inflation slowed in the fourth quarter of 2023. We suspect, however, that traders betting on a first cut in June or earlier will be disappointed – policymakers will need more evidence of a sustained downturn before moving into easing mode. (22:30 EDT)


The Bank of Mexico is overwhelmingly expected to stay on hold for a seventh straight decision, maintaining its benchmark rate at 11.25 percent. With January data out earlier in the day likely to show core inflation continuing its downward trajectory, officials could follow their developed-country counterparts in preparing markets for a slow and gradual easing cycle starting around the March meeting. The Federal Reserve’s shift into neutral should give policymakers some breathing room, but the all-clear for rate cuts hasn’t yet been sounded. (14:00 EDT)


A big disappointment in Canada’s January Labour Force Survey could have a significant impact on monetary policy expectations – and on the Canadian dollar. Markets lowered odds on a March rate cut after November and December gross domestic product estimates surprised to the upside in late January, but the jury is out on whether the economy is truly generating the kind of recovery that translates into increased demand for workers. A negative print could bring easing bets back into vogue and unravel the loonie’s recent gains. (08:30 EDT)

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