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Overview: The US dollar begins the new week quietly. The week features four G10 central bank meetings, and real sector data that may show the US economy is resilient despite the Atlanta's Fed's pessimism (which will be updated today). President Trump renewed his warning that reciprocal and sectoral tariffs will be announced on April 2. The greenback is trading with a mostly softer but consolidative bias today. Emerging market currencies are mixed, but of note the PBOC set the dollar's reference rate sharply lower (0.07%), the most this year, and at its lowest level in four months. The official announcement of new efforts to boost consumption, which helped fuel the rally in consumer stocks before the weekend seemed to lack the details necessary to capture investors' imaginations. 

US Treasury Secretary Bessent's dismissal of the sharp drop in US equities as a "healthy correction" ironically encouraging more sales. US index futures are off by about 0.5% to pare the strong pre-weekend advance. Asia Pacific equities rallied. China's CSI 300 was a notable exception, though Shanghai and Shenzhen eked out a small gain and mainland shares in HK advanced almost 0.6%. The Stoxx 600 in Europe is almost 0.5% higher, its third advance in the past four sessions. Benchmark 10-year yields are 5-7 bp lower in Europe today. There is some nervousness ahead of tomorrow's spending vote in Germany tomorrow. The French premium over Germany is a little smaller after Fitch confirmed France's sovereign rating at AA- and retained a negative outlook. Greek bonds are also off seven basis points after Moody's joined the other major rating agencies to give Greece investment grade status again. Gold is firm though slightly under the record-high set before the weekend near $3005. April WTI is firmer and traded above $68 for the first time since March 4, encouraged by the heightened risks of disruption following the US strike on the Houthis and Yemen. 

USD: The Dollar Index consolidated before the weekend ad continues today. The downside momentum stalled in the first part of last week, slightly below 103.25. It has been greeted with fresh sellers on attempts above 104.00 in the last two sessions and remains below it today. Real sector data this week and the Federal Reserve's assessment may help ease fears about the magnitude of the economic slowdown The Atlanta Fed's GDP tracker has spooked some participants with its -2.4% projection. It will be updated today and so far, has been based primarily on January data. Today's February retail sales report will be a step in the right direction. The headline is expected to rise by around 0.7% after falling by 0.9% in January. Some of the surge in imports (drag on GDP) will find their way into inventories (good for GDP). Tomorrow, February housing starts (residential investment) are expected to have bounced back after the partly weather-induced nearly 10% drop in January, and industrial output is seen expanding by 0.3% and growing by 0.5% in January. 

EURO: Encouraged by reports suggesting an agreement has been struck between the CDU/CSU, SPD, and Greens in Germany to allow passage of its new fiscal initiative in the this week, the euro set session highs ahead of the weekend slightly above $1.0910. Last week's high was closer to $1.0950. Support was found near $1.0865. The euro did not trade below $1.08 last week. It is trading quietly today between about $1.0870 and $1.0905. With the Federal Reserve, Bank of Japan, Sweden's Riksbank, the Swiss National Bank and Bank of England meetings, and a light economic diary, the eurozone is out of spotlight a bit this week. Many participants will be monitoring negotiations in Germany on the fiscal front and as the new government is forged. 

CNY: The dollar slipped against the offshore yuan last week and has risen in only one week since the end of January. The greenback made a marginal new low for the year last week against the onshore and offshore variants. It is on the weaker side of its four-month trading range. We suspect the risk-reward favors a firmer US dollar rather than a downside break (below CNH7.20). The PBOC set the dollar's reference rate at CNY7.1688 (CNY7.1738 before the weekend). It is the biggest change in the fix this year and the lowest reference rate for dollar since shortly after the US election last November. The weaker dollar setting lowers the top of the 2% band in which it is allowed to move. This is China provided February real sector data before the markets opened. They are difficult to read in the sense, there were not January releases, and the timing of the lunar new year holiday is also a source of distortion. On a year-over-year, year-to-date basis both industrial production and retail sales are running below last year's pace. New house prices slipped 0.14%, the first quickening of the decline since last August. Existing house prices fell by 0.34%, which is about the pace seen for the past few months. More economic support is likely needed to ensure growth and inflation targets are met. Officials unveiled sketch of a plan to boost consumption, births, and AI investment. 

JPY: The dollar recorded five-month lows last Tuesday near JPY146.55 and posted its highest settlement in seven sessions ahead of the weekend near JPY148.50. It is trading little changed  on the day in Europe near JPY148.65, having probed JPY149 earlier. Rising US rates and falling Japanese rates was the proximate driver of the dollar's gains before the weekend, which at around 0.40%, was the biggest single day advance in two weeks. The JPY149.20-30 area offers nearby resistance, but a close above JPY150 is needed to boost confidence the down trend from the January 10 high (~JPY158.85) is over. Tomorrow's January tertiary industry index is likely to confirm the weak start to year, while the February trade figures will likely improve after the JPY2.74 deficit in January. The trade balance always improves in February from January and front-running US tariffs may have flattered exports. The highlight of the week is the BOJ meeting that ends Wednesday. A March 4-11 Reuters poll found all but one of the 62 economists expect not change at this week's meeting and about 2/3 expect the next hike in Q3, probably July. 

GBP: Sterling softened a bit ahead of the weekend, but given the unexpected contraction in January's GDP, its resilience stood out. After pushing above $1.29 last Tuesday, sterling has remained above it. It barely slipped through the previous day's low before the weekend but held above last Wednesday's low (~$1.2915). It is trading firmly near the pre-weekend high (~$1.960). During sterling's recovery from the January 13 low near $1.21, counter-trend pullbacks, for which there have been four by our reckoning, they averaged almost two cents, but the was one outlier. Three such moves averaged about 1.6-cents, which would suggest potential toward around $1.2860, last week's low. The UK economic calendar is light until Thursday's employment data and Bank of England meeting. Like with the Fed and BOJ, there is practically no chance of a change in the BOE's policy this week. Indeed, Governor Bailey may note that the high level of uncertainty lends itself to a cautious stance. The base rate is at 4.50%. The swaps market has it a little below 4% at the end of the year. At the end of 2024, the swaps market put it near 4.10% and in early February, it was near 3.80%. 

CAD: The policy uncertainty sapping the conviction of businesses and traders stems from the US on-again-off-again tariff and threats, which given the integration of the US-Canadian economies for more than a generation, is a shock of great significance. There is also uncertainty arising from the intent of the new prime minister Mark Carney. The US dollar spent the last two sessions within the range set last Wednesday (~CAD1.4355-CAD1.4485). The range for the month was set in the first week of March (CAD1.4240-CAD1.4545). Only a break of this wider range is notable. The US dollar is pinned near last week’s lows and has not been above CAD!.4385 today. It found support in the second half of last week a little above CAD1.4350. Canada begins the week with February housing starts, existing home sales, and January's portfolio flow report. In terms of data, tomorrow's February CPI report is more important. However, attention in on the two political stories. One is the US instigated trade war. Canada, like the EU, have announced retaliatory measures, the UK, Mexico, and Australia, for example, have not. Second, Canada's parliament is due to return March 24. If Carney is to call for an early election, it would seem likely before then. It would likely be held in late April or early May. 

AUD:  The Australian dollar finished last week at the up end of week's range, above $0.6310. It reached a marginally new seven-day high near $0.6350 so far today. The intraday momentum is stretched. A break of $0.6320 may be the first sign of that a near-term top may be in place. Australia's economic diary is light until Thursday's February employment report. It created almost 110k jobs in Jan-Feb 2024. It would need to have created 66k last month to match that after a 44k increase in January. On the other hand, a disappointing report is unlikely to persuade the market that the central bank can cut rates when it meets next on April 1. 

MXN: Mexico's economic calendar is featureless until the first half of March CPI next Monday. The peso has not only been resilient to US tariff threats, but the peso also shrugged off news last week that industrial production fell by 0.4% in January, defying expectations for a small bounce after a 1.4% drop in December. It was the fourth consecutive monthly decline. Ideas that fentanyl confiscated at the southern US border could ease the US tariff threat helped lift the peso ahead of the weekend to its best level since shortly after the US election last November. The dollar traded below MXN19.85. It is consolidating in a narrow range so far today (~MXN19.91-MXN19.96). Barring a negative surprise with the CPI, the central bank is poised to deliver another 50 bp rate cut when it meets on March 27. Brazil's central bank has already pre-committed to a 100 bp hike of the Selic Rate to 14.25% this week. Last week's news that inflation (IPCA) jumped 1.3% in February for 5.06% year-over-year rate. That is the highest since September 2023. The dollar through BRL5.72 at the end of last week, its lowest level in about two-and-a-half weeks. The low this quarter recorded on February 18 near BRL5.6750. The 200-day moving average, which the dollar has not settled below since February 2024 is near BRL5.70 now. 

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