• ISM non-mfg. PMI awaited ahead of Powell’s testimony and NFP

• Yen slide pauses after accelerating Tokyo CPIs

• Aussie and kiwi slip as China announces ambitious growth target

• Equities retreat ahead of key events, gold and bitcoin rally

The US dollar rebounded somewhat against most of its major peers on Monday, although the fact that it lost decent ground against the euro and the pound kept the dollar index (DXY) lower. Today, the greenback is trading higher or unchanged.

Following Friday’s disappointing ISM manufacturing PMI for February, the dollar came under some selling interest as investors slightly brought forward their Fed rate cut bets. However, today, the market’s implied path is back near the levels observed before the ISM release. Market participants are assigning an 80% chance for the Fed to deliver its first 25bps cut in June, while the total number of basis points expected to be cut by the end of the year is at 85, slightly more than the Fed’s own projections of 75.

This suggests that there is still some room for the dollar and Treasury yields to further recover should incoming data and events corroborate the Fed’s ‘higher for longer’ mantra. The highlights for dollar traders this week may be Fed Chair Powell’s testimony before Congress on Wednesday and Thursday, as well as Friday’s nonfarm payrolls.

Nonetheless, that doesn’t mean that today’s ISM non-manufacturing PMI for February will pass unnoticed. On the contrary, following the disappointment in the manufacturing index and given that the services sector accounts for around 70% of US GDP, the non-manufacturing PMI may impact Fed bets even more. Expectations are for the index to have declined somewhat to 53.0 from 53.4, but investors may pay special attention to the prices and employment subindices, to get an updated idea of how the labor market and inflation are faring.

The yen stabilized somewhat today, keeping dollar/yen below the key resistance zone of 150.80. Perhaps yen sellers covered some of their short positions after the Tokyo CPIs revealed a strong acceleration in inflation during February.

However, with the majority of BoJ policymakers holding the view that even if a hike is delivered just after the spring wage negotiations, the pace of subsequent hikes in Japan will be very gradual, the yen is unlikely to stage a strong comeback anytime soon.

The Australian and New Zealand dollars are the main losers today, perhaps as China’s target for economic growth in 2024 was announced at around 5%, the same as in 2023, but with a budget deficit targeted at 3%, lower than the 3.8% target last year. This likely translates as wanting to achieve the same growth with less stimulus, which seems to be a hard task considering that the world’s second largest economy faces a deepening property crisis.

Apart from news coming from China, aussie traders will also have to evaluate Australia’s GDP data for Q4 during the Asian session Wednesday. Expectations are for a mild acceleration, which may allow the RBA to maintain its tightening bias for a while longer.

US stock indices closed slightly in the red yesterday, but that was after the S&P 500 hit another record high during the day. Perhaps equity investors adopted a more cautious stance towards the end of the trading session as several key events are on the agenda for the rest of the week.

Despite the dollar’s recovery, gold continued marching north, closing the distance from its record high to less than 1%. This confirms the notion that the precious metal is not only driven by the dollar and Treasury yields, but also by other factors like geopolitics and central bank buying. After all, even when the dollar was staging a strong recovery due to the repricing of expectations surrounding the Fed, gold held relatively steady, suggesting that there were still participants interested in buying it.

In the crypto space, Bitcoin extended its rally to a more than two-year high, surpassing the psychological barrier of $65.000. It seems that the crypto king continues to benefit from flows into the new spot ETFs, but also from speculation ahead of April’s halving event that could slow the supply growth.