Dovish Fed But Yields Rise, Helping The Greenback Recover From Yesterday's Slide

The dollar initially slipped to new lows for the week against the Japanese yen (~JPY106.65) before rebounding smartly to JPY109.30 before consolidating in the European morning.  It stopped just shy of the week's high (JPY109.35), which is itself the highest since last June.  There is talk that the BOJ could widen the band that the 10-year yield moves to+/- 25 bp instead of 20 bp at the conclusion of the policy review meeting tomorrow. The Australian dollar is firm, extending yesterday's outside up-day advance.  It reached nearly $0.7850, and a new high for the month before fading.  A move above $0.7860 is needed to signal a run at the $0.8000 seen at the end of February.  The dollar briefly traded below CNBY6.49 for the first time this week but quickly recovered back above CNY6.50.  It is little changed on the week.  The PBOC set the dollar's reference rate at CNY6.4859, which for the second day running, was nearly spot on with the bank models.  After some rhetorical flourishes, the US Secretary of State and National Security Adviser are meeting top Chinese foreign policy officials in Anchorage, Alaska, later today.  No joint statement is expected, but it is hoped that sufficient efforts are made to lay the groundwork for a Biden-Xi meeting as early as next month (FXY, FXA, CYB).  


The outcome of the Bank of England will be known shortly.  It is not expected to change policy, and Governor Bailey, like the Fed, will probably push against ideas that conditions are even remotely suitable to remove any monetary accommodation.  Norway's central bank takes a different tact.  It signaled it will likely raise rates in the second half of this year.  It sees a sooner lift-off, which helped send the krone to a new one-year high against the euro.  Previously, Norges Bank had suggested a hike in H1 2022. 

The Netherlands gave Rutte's VVD party a victory in yesterday's election. It will be his fourth term.  However, with about 35 seats in the 150-member parliament, it means protracted negotiations will be needed. The pro-European D66 did the best ever, securing second place with 27 seats. Wilders populist party slipped to third place with around 17 seats. The Christian Democrats, which held the finance ministry portfolio, dropped into fourth place.  It could lose the ministry to the D66. Recall that after the previous election, it took more than 200 days to forge a coalition.  The EU projected the Dutch economy to be the weakest in the region this year with about a 1.8% expansion after a 4.1% contraction last year.   

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Read more by Marc on his site Marc to Market.

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