Bonds Asia: Trump's remarks suppress safe-haven demand, US dollar index under pressure and closes lower

On March 24, Chicago Fed President Austan Goolsbee stated on Monday that depending on the inflation trend, the Fed could either return to a path of multiple rate cuts or be forced to restart rate hikes. Goolsbee, in an interview with CNBC, mentioned that the new round of inflation shocks triggered by the situation in the Middle East has made the current scenario “severe” and has disrupted the Fed’s established plans to some extent. He pointed out that before the new shocks hit, inflation was already at an uncomfortably high level, the current job market is close to full employment targets, and inflation is still away from the 2% target; therefore, in policy trade-offs, inflation must be prioritized. Goolsbee was cautious yet clear in the interview. “If inflation performs well, we might return to an environment of multiple rate cuts within the year,” he said, “but if things go the other way and inflation starts to spiral out of control, I can also envision a scenario where we need to raise rates.” Goolsbee explicitly listed the situation in the Middle East as a key exogenous variable affecting the Fed’s policy path. He stated that new inflation shocks are coming in succession, the current situation is severe, and the direction of the conflict in the Middle East will largely determine the Fed’s next actions.

Additionally, as the chaos caused by the U.S.-Israel-Iran war significantly drove up energy prices, consumer confidence in the Eurozone plummeted in March. Data released by the European Commission on Monday showed that the preliminary consumer confidence index for the Eurozone in March recorded -16.3, down from -12.3 in February. The EU officials stated that this is already the lowest point since October 2023. Other statistics show that this drop is also the largest decline in this indicator since March 2022, when European consumers were digesting the impact of the outbreak of the Russia-Ukraine conflict. The survey was conducted from March 1 to March 22, entirely after the outbreak of the U.S.-Israel-Iran war on February 28. Ankita Amajuri, a European economist at the Macro Economics Research Institute, interpreted the latest figures as indicating that the initial shock of the Middle East war on Eurozone confidence is more severe than last year’s tariffs imposed by Trump. She stated that after the market focused on the upside risks of inflation over the past two weeks, it now also needs to weigh the downside risks of weakening economic growth.

Data to watch today includes the Eurozone’s March SPGI manufacturing PMI preliminary value, the UK’s March SPGI services PMI preliminary value, the UK’s March SPGI manufacturing PMI preliminary value, and the U.S. March SPGI manufacturing PMI preliminary value.

U.S. Dollar Index

The U.S. dollar index fluctuated lower yesterday, narrowly maintaining the 99.00 level, with the current exchange price trading around 99.30. Besides the technical selling pressure near the 100.00 level impacting the exchange rate, U.S. President Trump’s speech alleviating market risk aversion, which reduced demand for safe-haven dollars, was also a significant factor pressuring the exchange rate lower. Additionally, the decline in U.S. Treasury yields added further pressure on the exchange rate. Today, pay attention to the resistance around 99.80, with support at approximately 98.80.

EUR/USD

The euro fluctuated upward yesterday, hitting an eight-day high, with the current exchange price trading around 1.1590. Apart from the technical buying support near the 1.1500 level, the dollar index, weakened by Trump’s speech easing safe-haven demand for the dollar, was also a key factor supporting the euro’s rise. Economic data released during the period from the Eurozone showed weakness, but had limited impact on the market. Today, watch for resistance around 1.1700, with support at approximately 1.1500.

GBP/USD

The pound fluctuated upward yesterday, reaching a nine-day high, with the current exchange price trading around 1.3390. In addition to short covering providing some support for the exchange rate, the dollar index weakened due to President Trump’s speech alleviating market risk aversion, which was also an important factor for the pound’s rebound. Furthermore, the recent hawkish signals from the Bank of England have also provided some support for the exchange rate. Today, pay attention to the resistance around 1.3500, with support at approximately 1.3300.