The recent surge in Treasury yields has bolstered the US dollar, and this trend is likely to continue as Federal Reserve speakers emphasize caution in cutting rates prematurely. Macquarie suggests that Fed speakers scheduled for the upcoming week will adopt a hawkish stance, distancing themselves from Chairman Jay Powell’s dovish tone. This divergence in views could provide further support for the dollar, particularly as US yields climb ahead of the consumer inflation report on Wednesday.
According to Goldman Sachs, there is a projection of a 0.29% increase in headline CPI, driven by higher energy and food prices. This forecast could lead to a decline in year-on-year rates for core and headline inflation. Fed speakers may highlight the risks associated with a premature rate cut, suggesting that the Fed’s estimates of the neutral rate for the US economy might need to be revised upwards. Last week, several Fed officials, including Neel Kashkari, warned against hasty rate cuts, signaling a cautious approach to monetary policy.
This week, a lineup of Fed speakers, including President Kashkari, President Goolsbee, President Williams, President Bostic, and President Daly, are expected to share their perspectives on the economy. Their remarks are timely, coinciding with the release of the latest consumer inflation data and the minutes from the Fed’s March meeting on Wednesday. These events could offer insights into the Fed’s thinking and its future policy direction, influencing currency markets.
In addition to the Fed’s rhetoric, the euro may also face headwinds from the European Central Bank’s dovish stance. The ECB is set to convene on Thursday, sparking speculation about a potential rate cut. While the likelihood of such a move remains low, any hint of accommodative measures from the ECB could weigh on the euro’s performance against the dollar. Investors will be closely watching for any hints of divergence in monetary policy between the US and the eurozone, which could impact currency dynamics in the near term.