Advanced filters
Job Role:
Content Type:
Job Role:
Content Type:

Market Briefing: US inflation data supports rate expectations, keeps dollar aloft

CalendarApril 28, 2023

Correction: The Canadian economy shrank 0.1 percent on a month-over-month basis in March. My apologies for any inconvenience. Corrected version below:

Data released this morning showed two of the Federal Reserve’s preferred inflation measures remaining stubbornly high, helping maintain expectations for a hike at next week’s meeting, followed by a long pause. Numbers published by the Bureau of Economic Analysis  showed the core personal consumption expenditures index - targeted by the central bank - rising 0.3 percent in March from the prior month, up 4.6 percent year-over-year - right in line with consensus estimates. The overall personal consumption expenditures index was up 4.2 percent from a year ago, down sharply from the 5-percent year-over-year pace recorded in February.

Personal income rose 0.3 percent month-over-month, maintaining momentum relative to February’s 0.3 percent gain. On a year over year basis, income rose 5.1 percent, led by a 6.4 percent increase in private sector wages and salaries. Inflation-adjusted household outlays remained essentially unchanged after falling by a revised 0.2 percent in February - suggesting that consumer demand could be softening.

Separately, the Employment Cost Index climbed 1.25 percent in the first quarter, accelerating from an upwardly-revised 1.1-percent gain in the final three months of 2022.

Front-end yields inched upward and the greenback crept higher as traders firmed odds on a hike at next week’s meeting, and reduced bets on rate cuts in the latter half of the year.

North of the 49th, a preliminary estimate showed the Canadian economy shrinking 0.1 percent on a month-over-month basis in March, suggesting that underlying momentum is beginning to fade. Statistics Canada said output grew 0.1 percent in February, with rising activity levels in the public sector, credit-granting institutions, and residential construction helping offset losses in wholesale and retail trade. According to the agency’s calculations, this would amount to a an annualized 2.5-percent increase in real output in the first quarter, broadly in line with updated forecasts from the Bank of Canada. The Canadian dollar slipped slightly lower in the minutes after the data hit the wires.

Earlier, Kazuo Ueda kept policy settings intact and avoided delivering major surprises in his first meeting as governor of the Bank of Japan. As had been widely expected, the central bank removed statement language that previously hinted at potential rate cuts, and updated its forecasts to show inflation falling back below target over the next two years. Ueda-san said officials would begin a year-long monetary framework review, not “with the aim of normalizing,” but that policy shifts could take place in parallel with the process. The yen slipped more than 1 percent as remaining bets on a rapid move higher in yields were wiped out.

And Europe’s economy managed to stay out of recession in the first quarter, with warmer winter weather, lower energy prices, and ongoing government spending efforts helping the region avoid a widely-expected slowdown. The latest numbers from Eurostat published early this morning showed the combined output of the 20 euro area countries rising by an annualized 0.3 percent in the first three months of the year after a 0.2 percent contraction in the last quarter of 2022. Combined with improving sentiment levels and above-forecast inflation prints from France and Spain, the data should help support expectations for rate increases at the European Central Bank’s next two meetings - but a slow-motion credit crunch could yet add to the rising tide of corporate bankruptcies, forcing a policy reversal by early 2024.

Next week will bring rate decisions in Australia, Brazil, Europe, and the United States, euro area inflation data, and employment reports that could deliver further signs of a softening in North American labour markets. Tuesday’s euro area core consumer price number is seen sliding slightly as non-energy goods costs fall, but an upside surprise could lift odds on a half-point move at the European Central Bank’s Thursday decision. Investors are overwhelmingly positioned for a quarter-point hike from the Fed, but the statement language is expected to telegraph a pause at the following meeting, and implied pricing suggests that the central bank will cut rates two or three times by year end - even as officials have repeatedly warned that a reversal is unlikely before 2024. Tuesday’s March Jobs Openings and Labor Turnover Survey should show a further decline in the number of available roles and an increase in the job separation rate, while Friday’s non-farm payrolls report is expected to show 175,000 new positions added in February, down from 236,000 in March.




Upcoming Events


USD University of Michigan Sentiment, April Final

USD    Kansas City Federal Reserve Services Activity, April

USD    Baker Hughes Weekly Rig Count


USD S&P Global US Manufacturing Purchasing Manager Index, April Final

USD    Institute for Supply Management Survey, April

CNY    Caixin China Purchasing Manager Index Manufacturing, April


AUD Reserve Bank of Australia Rate Decision

EUR    S&P Global Eurozone Manufacturing Purchasing Manager Index, April Final

EUR    Euro Area Bank Lending Survey

EUR    Consumer Price Index, April Preliminary

USD    Job Openings and Labor Turnover Survey, March


EUR Unemployment Rate, March

USD    ADP Employment Change, April

USD    S&P Global US Composite Purchasing Manager Index, April Final

USD    Department of Energy Weekly Inventories

USD    Federal Reserve Rate Decision

USD    Federal Reserve Press Conference

BRL    Central Bank of Brazil Rate Decision

CNY    Caixin China Purchasing Manager Index Composite, April


EUR S&P Global Eurozone Composite Purchasing Manager Index, April Final

EUR    European Central Bank Rate Decision

USD    Weekly Jobless Claims

USD    Trade Balance, March

EUR    European Central Bank Press Conference

AUD    Reserve Bank of Australia, Statement on Monetary Policy


USD Non-Farm Payrolls, April

CAD    Employment, April

USD    Baker Hughes Weekly Rig Count


Karl Schamotta

Karl Schamotta

Chief Market Strategist

Gain insights into developments in global currency graphSubscribe