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  • Writer's pictureMatheus Zani

The FX Markets March Outlook

The macro data is still painting a mixed picture of the U.S. economy. Nonetheless, investors are increasingly confident a full global recovery is on the way. So much so, that the emerging concern is not growth, but near-term inflation.

Given the prospects for further sizeable U.S. fiscal stimulus and vaccine-driven growth improvements, the U.S economy will re-open gradually. What’s expected includes a surge in commodity products demand, hence higher energy, metal and agricultural prices (Fig 1). Secondly, certain stimulus policy measures - such as VAT rate cuts - will be reversed. Thirdly, emerging price pressures in virus-sensitive sectors, such as restaurants and entertainment.

Figure 1. Commodity CRB Index (blue line, right) and Crude oil (orange line, left)

As a result, inflation expectations are already rising (Fig 2). Though some of the latest increase likely is a response to the spike in gasoline prices, which have jumped by 25% since their November low. The Conference Board's measure of inflation expectations always runs well above the current rate of CPI inflation, but the spread surged when Covid-19 drove up the price of food in the spring.

Figure 2. Inflation expectations are sensitive to food inflation. Source: Pantheon Macroeconomics

On the back of concerns about rising inflation, the U.S. treasury yields have been pushing higher over February, with 10-year note hitting 1.5% in the month of February - well above the all-time lows set in Q3 2020 (Fig 3).

The implications for the U.S. dollar are not so logical, albeit higher yields in mid-January boosted the greenback. In theory, higher bond yields and stronger growth prospects relative to the rest of the world should provide support for the U.S. dollar, however, the rise in long-duration yields is being offset by short-end yields – out to about a year – rapidly nearing zero.

Figure 3. U.S. 10 Year Treasury (blue line, left) and Dollar Index (orange line, right). Source: Federal Reserve Board

Moreover, the recent comments by U.S. Fed Chair Jerome Powell emphasizing that while the Fed expects a robust recovery, it hasn't happened yet, and the uncertainties are enormous, poured some cold water in the U.S Dollar.

He acknowledged that there is a risk of a spike in prices as strict measures are lifted, but he argued that such price gains would prove temporary. On the topic of unemployment, Mr. Powell said that the official 6.3% unemployment rate (Fig 4) is deceivingly low given that so many Americans are not actively looking for work and are thus not counted in the official unemployment rate.

Figure 4. Civilian unemployment rate, seasonally adjusted. Source: U.S. Bureau of Labor Statistics

Against this mixed picture, the U.S. economic recovery seems to be uneven and far from complete. For March and in the upcoming months, it is difficult to know what is going to happen with growth or inflation, because the global economy is under an unprecedented situation. Perhaps, market participants will continue to see a rise in U.S Treasury yields, along with prices picking up, but the real impact on the USD is unknown.

March’s Economic Calendar


On Monday (03/01): ISM Manufacturing PMI (Feb)

On Wednesday (03/03): OPEC Meeting | ADP Nonfarm Employment Change (Feb) | Beige Book

On Friday (03/05): Unemployment Rate (Feb)

On Thursday (03/11): OPEC Monthly Report | JOLTs Job Openings (Jan)

On Friday (05/12): Producer Price Index (Feb)

On Tuesday (03/16): Retail Sales (Feb) | Industrial Production (Feb) | Export Price Index (Feb) | Import Price Index (Feb)

On Wednesday (03/17): Building Permits (Feb) | Fed Interest Rate Decision | Housing Starts (Feb)


On Monday (03/01): Eurozone Manufacturing PMI (Feb) | German Consumer Price Index (Feb)

On Tuesday (03/02): Consumer Price Index (Feb) | German Retail Sales (Jan)

On Wednesday (03/03): Eurozone Services PMI (Feb)

On Thursday (03/04): ECB Economic Bulletin

On Monday (03/08): German Industrial Production (Jan)

On Tuesday (03/09): GDP (Q4)

On Thursday (03/11): ECB Interest Rate Decision (Mar)

On Tuesday (03/16): German ZEW Current Conditions (Mar) | Eurozone ZEW Economic Sentiment (Mar)


On Monday (03/01): Manufacturing PMI (Feb)

On Wednesday (03/03): Services PMI (Feb) | Annual Budget Release

On Friday (03/05): Halifax House Price Index (Feb)

On Monday (03/08): BRC Retail Sales Monitor (Feb)

On Friday (03/12): Industrial Production (Jan) | Trade Balance (Jan)

On Thursday (03/18): BoE Interest Rate Decision (Mar)


On Monday (03/01): Jobs/applications ratio (Jan) | Capital Spending

On Tuesday (03/02): Services PMI (Feb)

On Monday (03/08): GDP (Q4)

On Monday (03/15): Industrial Production (Jan)

On Tuesday (03/16): Exports (Feb) | Trade Balance (Feb)

On Thursday (03/18): Consumer Price Index (Feb)


On Tuesday (03/02): GDP (Q4)

On Wednesday (03/03): Building Permits (Jan)

On Friday (03/05): Trade Balance (Jan) | Ivey PMI (Feb)

On Wednesday (03/10): BoC Interest Rate Decision

On Friday (03/12): Unemployment Rate (Feb) | Wholesale Sales (Jan)

On Monday (03/15): Housing Starts (Feb) | Manufacturing Sales (Jan)

On Wednesday (03/17): Consumer Price Index (Feb)


On Monday (03/01): Manufacturing PMI (Feb)

On Monday (03/08): Consumer Confidence Index (Mar)

On Monday (03/15): Holiday - Benito Juarez's Birthday Memorial

On Tuesday (03/09): Consumer Price Index (Feb)

On Wednesday (03/12): Industrial Production (Feb)

On Friday (03/19): Gross Savings (Q4)

On Thursday (03/25): Interest Rate Decision (Jan) | Economic Activity (Jan)

On Friday (03/26): Trade Balance (Jan)


On Tuesday (03/02): Caixin Services PMI (Feb)

On Sunday (03/07): Trade Balance (Feb) | Exports and Imports (Feb)

On Tuesday (03/09): Consumer Price Index (Feb) | Producer Price Index (Feb)

On Sunday (03/14): Fixed Asset Investment (Feb) | Industrial Production (Feb)


On Monday (03/01): Markit Manufacturing PMI (Feb)

On Tuesday (03/02): IPC-Fipe Inflation Index (Feb) | Producer Price Index (Jan)

On Wednesday (03/03): GDP (Q4) | Markit Services PMI (Feb)

On Friday (03/05): Industrial Production (Jan)

On Tuesday (03/09): Service Sector Growth (Jan)

On Thursday (03/11): Consumer Price Index (IPCA) (Feb)

On Friday (03/12): Retail Sales (Jan)

On Wednesday (03/17): Interest Rate Decision

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