Dollar steadies near long-term support

The greenback has tumbled since topping out and printing a “doji” candle around a month ago at 105.88 on the widely followed DXY index. The low print yesterday at 101.41 was down over 4% from that peak as the USD has struggled with a huge reset of Fed rate hike bets. Policymakers are very much data dependent with much focus on the non-farm payrolls report out tomorrow amid holiday-thin markets and next week’s US CPI data. Strong support should be found around the early February bottom at 100.82.

Most of the economic releases this week have played into the slower growth narrative with ISM data generally disappointing and the JOLTS job vacancy numbers coming in much lower than expected. In fact, it was the lowest print since May 2021 and jolted the market ahead of the marquee NFP report. Consensus sees around 240,000 job gains in March with the jobless rate sticking at 3.6% and average hourly earnings moving a tick higher to a relatively benign 0.3%. The headline number has continued to surprise to the upside over recent months with 311k new jobs created in February and only marginal revisions.

The odds have flipped back and forth as to whether the FOMC hikes rates by 25bps or stand pat at its meeting at the start of next month. Currently, money markets give the no change camp a 56% chance while a hike is seen as a 44% probability. Of course, Fed rate hike expectations have changed markedly since a month ago before the banking turmoil when investors were seeing a peak, terminal rate above 5.5%. Now, this rate is seen close to where we stand at the moment at 4.75%, with around 80bp of rate cuts into year end.

Cable consolidates after breaking higher

Sterling is managing to hold near its recent highs and above key support. The pound pushed north on Tuesday to its highest level since last June. Certainly, the softer dollar is a boon and comments from a BoE official encouraged bulls to advance beyond key resistance at the year-to-date top at 1.2447. Huw Pill, the bank’s chief economist, said that the MPC still cannot be sure that it has raised interest rates enough to tame inflation. He voted last month to lift rates to 4.25%, its eleventh increase since the start of the hiking cycle in December 2021. Money market currently forecast over 50bps of additional hikes by September, before the bank stops tighening policy.

A weekly close above the Janaury peak at 1.2447 is important for buyers to build on this week’s upside bullish momentum. A long-term move towards the 200-week SMA above 1.28 could be on the cards if that happens. Near-term support below the February top is 1.2274.