Bond Asia: Market risk sentiment has slightly improved, and the US dollar index hits a one-week low

On April 2nd, a survey showed that due to supply chain disruptions, the Eurozone manufacturing growth data was pushed higher, with March manufacturing growth reaching its strongest level in nearly four years. However, at the same time, underlying demand remains weak, and rising input costs triggered by the Iran war pose a threat to the fragile industry recovery. Conflicts in the Middle East have disrupted global logistics networks, leading to delivery delays, which have partly boosted overall growth indicators, while also pushing input price inflation to its highest level since October 2022. Data shows that the Eurozone’s March S&P Global Manufacturing Purchasing Managers’ Index (PMI) rose from 50.8 in February to 51.6, above the initial estimate of 51.4. An index above 50 indicates industry expansion. S&P Global Market Intelligence Chief Economist Joe Hayes said, “The Middle East war has left its mark on Eurozone manufacturing. As the logistics market adjusts to maritime disruptions, supplier delivery times have significantly lengthened, and soaring oil and energy prices have driven factory input cost inflation to its highest level since late 2022.”

Additionally, Bank of England Governor Andrew Bailey stated that the financial markets are somewhat “overly optimistic” about the BoE’s rate hikes to curb inflation. In an interview, Bailey said policymakers need to control inflation in a way that causes the “least damage to economic activity and employment.” Previously, after the BoE announced last month that it was “ready to act on inflation,” markets priced in up to four rate hikes. Regarding this market expectation, Bailey said, “I still believe this is a judgment the market has to make, but I think they are rushing it.” He added, “If we believe it’s appropriate, of course, we must take action on monetary policy. But, in my view—and still today—the most important thing is to address the source of the shocks.” He also pointed out that companies have limited ability to pass on rising costs to consumers through pricing.

Today’s key data to watch include U.S. Challenger layoffs for March, U.S. trade balance for February, U.S. initial jobless claims for the week ending March 28, and Canada’s trade balance for February.

Dollar Index

The dollar index declined and hit a one-week low yesterday, with the spot exchange rate around 99.90. Aside from the renewed expectations of Fed rate cuts continuing to weigh on the currency, signs of easing tensions in the Middle East and the safe-haven demand that had supported the dollar also contributed to the dollar index’s weakness. Overall, U.S. economic data released during the period performed well but had limited market impact. Today, focus on resistance around 100.50, with support near 99.50.

EUR/USD

The euro rose yesterday, briefly breaking above 1.1600 and reaching a one-week high, with the spot exchange rate around 1.1550. The main reasons for the euro’s rise are the weakening of the dollar index due to reduced safe-haven demand and the rekindling of expectations for Fed rate cuts. However, investor expectations for the European Central Bank’s rate hikes have cooled, limiting the euro’s upside. Today, watch for resistance around 1.1650, with support near 1.1450.

GBP/USD

The British pound rose yesterday, hitting a three-day high, with the spot exchange rate around 1.3250. The main reasons for the pound’s strength are the decline in the dollar index driven by the rekindling of Fed rate cut expectations and reduced safe-haven demand. Additionally, recent strong UK GDP data has continued to support the currency. Today, focus on resistance around 1.3350, with support near 1.3150.