The USD (by BBDXY measure) rose 0.8% yesterday to post its third consecutive daily gain as rising geopolitical tensions drove haven demand and Fed Governor Waller struck a guarded tone on Fed rate cut prospects.

“With economic activity and labor markets in good shape and inflation coming down gradually to 2%, I see no reason to move as quickly or cut as rapidly as in the past,” Waller would state, seeming to push back against market expectations for as many as 6 hikes this year.

He added that once the Fed is reasonably convinced that inflation is sustainably near the Fed’s 2% target, policymakers can “start thinking how fast we want to cut, or how long, what the pace is, or how big.” 10-year US Treasury yields rose more than 8 basis-points on the day and investors pared odds of a first Fed rate cut in March.

The USD would gain further overnight as disappointing Chinese growth data continued yesterday’s risk-off tone. This morning’s US retail sales data beat estimates (0.6% m/m, 0.4% expected).

The EUR/USD fell 0.7% yesterday, roughly in-line with other G10 currencies. The more recent Governing Council members that have spoke publicly seemed to push back on ECB easing moves ahead in 2024. Earlier this week The ECB’s Holzmann said that rate cuts were not assured this year given lingering inflation and geopolitical risks. Speaking just ahead of the ECB black-out period, stated early today that it’s likely the ECB will cut rates in the summer, prompting investors to price-out a full rate cut at the April decision. Eurozone aggregate inflation data released earlier today was right on expectations, with a decently sizeable downward revision to the prior month’s year-over-year reading.

The GBP/USD fell 0.75% yesterday, also in line with G10 counterparts. Wage data released yesterday saw a continued drop in wages, potentially creating room for the BOE to begin pivoting language to a more dovish tone as they become more confident the risks of persistent inflation abate. Inflation data released earlier today came in higher across the board, with the core measures highlighting sticky services inflation while prices of more basic, every day goods fell.

The Canadian Dollar fell 0.5% yesterday, a relative outperformer in the G10 currency space after domestic core inflation data released rose at a faster pace than expected yesterday. Despite prices of the more interest-sensitive spending categories declining, the data prompted investors to push back bets on when the central bank will begin lowering rates from the April decision to June. The CAD is headed for its fifth straight daily drop today to levels last seen on December 13th as investor sentiment sours and crude oil prices fall for a fourth straight day.

Emerging market currencies continue to see broad-based declines as investors pare back bets on Fed rate cuts. The Mexican Peso leads losses among its peers and is down 2.75% this week, while the Brazilian Real is down 1.85%.