USD holds onto gains as focus moves back to relative rates The USD is holding onto the gains made in the second half of last week, but with a rather quiet calendar ahead. In a holiday-distorted week, the only real nuggets of interest are likely to be the Fed’s preferred measure of inflation, the PCE deflator, and comments from Fed Chair Powell. Both come on Friday when the US equity market will be closed for the Good Friday holiday. We expect the headline rate to nudge up to 2.5% YoY in February from 2.4%, and for the core rate to remain at 2.8%. There is a lot of other data, but mostly second-tier in nature, centring on housing sector data and the final estimate of Q4 GDP. The Atlanta Fed’s GDP estimate for Q1 is running at a still healthy 2.1%. It is questionable how much Chair Powell’s observations on the economy can change in the space of a week, but markets will be curious what others on the FOMC think. On Friday, the Fed’s Bostic said he now looks for one rather than two cuts in 2024. For much of the year so far, G10 exchange rates were driven exclusively by the Fed. For example, EURUSD tracked US rate expectations closer than it did the expected rate differential. That may now be changing, with a renewed focus on relative rates. The surprise cut by the SNB was a catalyst, as was the dovish vote outcome at the BoE last week. Even hawks at the ECB are keen to stress the likelihood of a June rate cut. Of course, not all policy action outside of the US has pointed to currency weakness. Japan’s MoF stepped up its verbal intervention on the JPY. These actions outside of the US have feedback loops onto the USD.  On balance, we expect them to keep the USD towards the strong end of its range but may be insufficient to prompt a breakout.