Last Friday, the single currency rose slightly after the release of the ISM services data, closing the week almost one percentage point above last Monday’s lows. This morning, following hawkish comments from ECB officials over the weekend, which supported interest rate differentials, the euro rose 0.3% against the dollar, making it the second-best performing G10 currency against the greenback, after the Swiss franc. The Swiss franc rose 0.4% against the dollar after February inflation data surprised to the upside, at 3.4% year-on-year.
Today, at 11:00 CET, investors will be watching comments from ECB Chief Economist Philip Lane in Dublin, after Lagarde’s remarks over the weekend confirmed a 50-basis-point hike in March and signalled a possible continuation of a hawkish stance. In addition, investors will be watching January retail sales and the March Sentix index, which measures investor confidence.
In the US, the DXY index closed Friday down 0.39%, after markets digested the latest ISM services data as supportive of a soft landing. This week, global markets remain focused on Fed pricing, as markets are currently trading in a state of uncertainty while awaiting the next steps for US rates, a debate that could be settled after Chair Powell’s remarks when he testifies before Congress tomorrow and the following day, and above all after the release of the next round of hard labour market data.
In Latin America, the recalibration of global market expectations for the USD following the latest ISM services data, interpreted as supportive of a soft landing, appears once again not to have affected the main Latin American currencies, with the MXN leading the way. This week’s data calendar in Mexico is busy, with the release of the February consumer confidence index, labour market surveys, and January industrial production on Friday. However, investors’ focus will once again be on inflation data. The monthly data release on Thursday will help complete the picture of the index’s trend throughout the second month of the year. The final February figure may tip the balance for the Bank toward providing markets with more information on the next steps ahead. In addition, the release of US employment data will generate volatility across Latin American currencies in general, and we expect especially in the MXN, despite the fact that in recent weeks we have already observed the strength of the Mexican currency in the face of a stronger USD.
