This week may bring a little bit less drama and volatility after the assortment of central bank meetings we witnessed last week. A surprise cut by Switzerland’s central bank on Thursday helped push markets to new highs. Traders now realise major central banks won’t necessarily wait for policy easing from the FOMC, before delivering their own. This suggests we might get more volatility in forex markets as policymakers veer off on their own paths of monetary policy.

A case in point is the Japanese yen, which hit multi-year lows versus several currencies, while USD/JPY currently hovers near intervention highs. But that is not a textbook reaction, as most tell us currencies appreciate when interest rates rise. BoJ Governor Ueda indicated there was little rush to add to rate hikes for now. We talked about “baby-steps” last week and this is likely to be the bank’s modus operandi going forward in order not to roil (bond) markets. For FX, we will be watching the 10-year US Treasury yield as this has a strong correlation with the major and looks to be rolling over again. Fed policy could potentially have a bigger influence on the yen in the near-term.

Amid a thinner week on the calendar, US February PCE inflation stands out. This inflation measure is widely quoted as being the Fed’s favoured inflation gauge. That is because it is broader in coverage than the more widely followed CPI data. In the central bank’s view, it better represents spending patterns of the all-important US consumer. Interestingly, FOMC officials kept their bets of 75bps of rate cuts later this year, despite hotter inflation prints in January and February.

Do they know something we don’t? Chair Powell attributed this to seasonal adjustments which implies that upcoming inflation report should resume the moderation trend and make significant progress toward the 2% target. Nevertheless, the dollar enjoyed its best week since the start of the year, as markets accept other major central banks may reduce their policy rates faster than the Fed.

Stock markets continued to make fresh record highs with the benchmark S&P 500 posting its biggest weekly gain of 2024. Take your pick from a “soft landing”, “no landing” and a “Goldilocks” environment to describe the current, outstanding theme. Ultimately, the Fed’s first rule is to avoid a recession at all costs, and the best way to kick one off is tipping equities into a bear market. The prospect of lower borrowing costs makes the rally more sustainable. But Powell also said the road ahead for inflation getting back to target would be bumpy.

In Brief: major data releases of the week

26 March 2024, Tuesday

– US Durable Goods: Consensus sees a strong rebound in February with a reading of 1.4%, following the -6.2% in January. That was the biggest drop in nearly four years, amid a sharp decline in commercial aircraft bookings.

27 March 2024, Wednesday

– Australia CPI: Expectations are for February to tick higher to 3.5% from 3.4%. The RBA central forecasts are for inflation to return to the target range of 2%-3% in 2025. Markets read the recent central bank statement as dovish.

28 March 2024, Thursday

–Tokyo CPI: This is a leading indicator for national inflation prints. The Tokyo reading is expected to ease to 2.5% y/y from 2.6%. Volatility has been evident in the monthly data due to the government energy subsidies programme. 

29 March 2024, Friday

– US Core PCE: Analysts forecast the core deflator rising 0.3% from 0.4% in January. That implies an annual rate of 2.8%. The FOMC’s updated projection sees this gauge at 2.6% at year-end. The Good Friday holiday period means liquidity will be thin into the weekend.