The dollar and Treasury yields are holding steady as markets await minutes from the Federal Reserve this afternoon. The record of January’s meeting is expected to show officials downplaying the need for dramatic policy adjustments in the coming months, with members likely to express a need for more evidence of disinflation before launching an easing cycle.  

The Canadian dollar is trading below its 200-day moving average after yesterday’s softer-than-anticipated January inflation report raised market-implied odds on a rate cut coming before the Bank of Canada’s June meeting. Annual headline price growth fell to 2.9 percent from 3.4 percent prior, and the central bank’s preferred measures of core inflation undershot expectations, suggesting that weak domestic demand is helping to accelerate a global disinflationary process. 

We’re sticking with our call for an easing cycle beginning at the central bank’s June meeting: the lagging impact of November’s easing in financial conditions could yet boost spending and consumption levels, and we think policymakers will want to see inflation holding near target for a few months before pulling the trigger. But the toll that higher borrowing costs have taken on the economy is increasingly unmistakable, and an earlier move – perhaps even one that comes ahead of the Fed – cannot be ruled out. 

Swap-implied number of Bank of Canada rate cuts by meeting date

Bank of England Governor Bailey yesterday helped ratify bets on rate cuts beginning in June, calling current market expectations “not unreasonable” in testimony to the House of Commons Treasury Committee. Swaps-implied odds on a move at the meeting are hovering near 65 percent, with a total of three cuts discounted across this year’s curve. Bailey said recent growth numbers point to a “very weak recession” and noted “distinct signs of an upturn,” phrasing that suggests the Bank could cut policy rates because inflation is declining, not because the economy is crumbling. 

Ahead today: The Atlanta Fed’s Raphael Bostic, Boston’s Susan Collins, and Governor Michelle Bowman are scheduled to speak, but – somewhat perversely – it’s the release of NVIDIA’s earnings, after the closing bell, that could prove most meaningful for global markets. The company’s fourth-quarter results are expected to show revenue doubling to more than $59 billion in the fiscal year ended in January, with another $21 billion seen coming over the first fiscal quarter in 2024 as frenzied demand for artificial intelligence chips helps support a market valuation topping $1.8 trillion. A disappointment could see the S&P 500 sell off, with high-beta currencies like the Canadian dollar coming down in close synchrony.