Yields fall to one-month lows after Powell comments

March 6 (Reuters) – Longer-dated US Treasury yields fell to one-month lows on Wednesday after Federal Reserve Chair Jerome Powell said that continued progress on inflation “is not assured,” though the central bank still expects to reduce its benchmark interest rate later this year.

“If the economy evolves broadly as expected, it will likely be appropriate to begin dialing back policy restraint at some point this year,” Powell said in testimony to the House Financial Services Committee.

“Powell pretty much straight out said that they’re done with rate hikes. That’s a big risk the market was concerned with,” said Marvin Loh, senior global macro strategist at State Street in Boston.

“Certainly, they feel that policy is restricted enough that it’s going to do its job. It’s just a matter of how long it’s going to take,” Loh added.

Investors are evaluating when the US central bank is likely to begin cutting rates.

Fed funds futures traders see a 70% probability the first cut will come by June, according to the CME Group’s FedWatch Tool.

Friday’s jobs report for February may provide the next clues. It is expected to show that employers added 200,000 jobs during the month, according to economists’ polled by Reuters.

Private payrolls increased by 140,000 jobs last month after rising by an upwardly revised 111,000 in January, the ADP Employment report showed on Wednesday.

Other data on Wednesday showed that US job openings fell marginally in January, while hiring declined as labor market conditions continue to gradually ease.

A Fed survey also found that US economic activity increased slightly from early January through late February.

Will Compernolle, a macro strategist at FHN Financial in New York, said that markets are concerned that growth may “overheat,” but adds that this would only be problematic if inflation is also high.

Thus, next week’s Consumer Price Index (CPI) for February is key for future Fed moves and market sentiment.

“If the employment report comes in mostly as expected it all hinges on Tuesday’s CPI, because that shows whether this strong growth is something to be worried about or whether it is something to celebrate,” Compernolle said.

The CPI is expected to show that headline prices rose 0.4% last month, while core prices gained 0.3%.

Benchmark 10-year yields were last down 3 basis points on the day at 4.108%, and got as low as 4.079%, the lowest since Feb. 7.

Two-year yields gained 1 basis point to 4.552% after earlier dropping to 4.510%, the lowest since Feb. 15. The inversion in the yield curve between two-year and 10-year notes deepened by five basis points to minus 45 basis points.

The amount banks and fund managers lent to the Fed in its reverse repurchase agreement facility ticked up on Wednesday to USD 456.85 billion.

(Reporting By Karen Brettell; Additional reporting by Herbert Lash in New York; Editing by Sharon Singleton and Diane Craft)

‘Worst case’ inflation fears threaten bond market calm as Powell addresses lawmakers

NEW YORK, March 6 – An uneasy calm that has pervaded the US bond market could break in coming days, as looming data on employment and consumer prices shed more light on how long the Federal Reserve might need to keep rates elevated in its battle to decisively defeat inflation.

While investors still expect rate cuts this year, unexpected economic strength has forced many to recalibrate how deeply the Fed will be able to lower borrowing costs without reigniting inflation, aligning the market’s views on easing more closely with those of the central bank. Yields on the benchmark US 10-year Treasury, which move inversely to bond prices, have traded in a narrower range over the last few weeks.

Fed Chairman Jerome Powell echoed that sentiment on Wednesday, when he told lawmakers that continued progress on lowering inflation “is not assured” though the central bank still expects to cut rates in 2024.

Things could grow more precarious for bond investors if Friday’s employment data and next week’s consumer prices report show continued strength in the economy and more stickiness in inflation, further pushing back expectations for Fed cuts. That, in theory, could drive yields higher, further hurting investors who had jumped into Treasuries over the last few months betting on imminent easing.

“The worst case scenario for the fixed income market is if we get a ‘no-landing’ scenario, where the economic picture is still solid and inflation picks up,” said Lawrence Gillum, chief fixed income strategist for LPL Financial. “If we get that reacceleration in inflation or the economy, the 10-year could retest 5%”, he said.

In his remarks, Powell noted that inflation had “eased substantially” since hitting 40-year highs in 2022. He said there were risks of both cutting rates too soon and allowing inflation to reaccelerate, and of keeping monetary policy too tight for too long and damaging an ongoing economic expansion.

The 10-year yield was recently at 4.11%, little changed after Powell’s comments. Yields have bounced between about 4.05% and 4.35% since early February, following a swift decline from a 16-year high of just above 5% hit in October 2023.

That range of just over 30 basis points compares to a 38 basis point range from the start of the year through the first two trading days of February, and an almost 57-point swing in December.

Futures tied to the fed funds rate on Wednesday showed traders pricing in about 90 basis points in rate cuts this year, much less than the 150 basis points they had priced in early January. The Fed penciled in 75 basis points of cuts in its projections late last year.

“If we get additional prints above 2% that will force the market to rethink the rate picture for the balance of the year,” causing more short-term volatility and a steepening of the yield curve, said Charlie Ripley, senior investment strategist at Allianz Investment Management.

Like many investors, however, Ripley believes the peak for rates likely came last year.

“Yields might move up marginally from a rangebound perspective, but this is an attractive entry point,” he said.

Net shorts in two-year Treasury futures last week fell to their lowest level since May, data from the Commodity Futures Trading Commission showed, suggesting lowered expectations for yields to spike further.

Others, however, are less certain that the economy will cool or the Fed will be in any hurry to ease monetary policy.

Easing financial conditions – including record high investment grade bond issuance, rising IPO activity, and new all-time highs for the US stock market – will likely continue to push inflation higher over the course of 2024 and undercut the case for rate cuts, warned Torsten Slok, chief economist at Apollo Global Management, in a March 1 note.

“The reality is that the US economy is simply not slowing down,” he said.

Economists polled by Reuters expect the US to have added 200,000 jobs in February, after a blockbuster 353,000 jobs added in the previous month. The US consumer price report, slated for March 12, is expected to show prices growing by 0.4% in February. Consumer prices grew at a faster-than-expected rate of 0.3% in the previous month.

“The market is going to be most sensitive to rates and rates are going to be sensitive to inflation, so we’re watching inflation more closely than anything right now as the predominant risk for markets,” said Michael Reynolds, vice president of investment strategy at Glenmede. “The next CPI report is going to be very closely watched.”

(Reporting by David Randall and Davide Barbuscia; Additional reporting by Lewis Krauskopf; Editing by Ira Iosebashvili and Chizu Nomiyama)

US dollar’s strength to persist as markets eye cautious Fed

BENGALURU, March 6 – A strong US dollar will maintain the status quo in the near term, as markets brace for a risk the Federal Reserve’s first interest rate cut gets delayed to the second half of this year, according to a Reuters poll of foreign exchange strategists.

Shrugging off a weakening trend late last year, the dollar has gained against nearly every currency tracked by traders and investors, and is up nearly 2.5% for the year.

Much of the greenback’s recent strength is based on stronger-than-expected US economic performance and receding calls for early Fed rate cuts. The timing of the latter is likely to have a bigger say on the currency’s moves in the near term.

“Over the next three months, I think we’re probably going to see the dollar hold in the ranges we’ve been seeing since the start of the year,” said Shaun Osborne, chief currency strategist at Scotiabank.

“If we’re in a situation where instead of the soft landing, it’s a no-landing scenario, that potentially reduces rate cut opportunities for the Fed quite significantly over the balance of this year, in which case the dollar probably stays relatively strong.”

Despite trader positioning data showing speculators increasing their net long dollar bets to the highest since last November, analysts in a Reuters March 1-6 poll were somewhat divided on how positioning will look over the next three months.

Among 66 analysts who answered an additional question, a slim majority of 35 expected not much change, while 17 predicted a decrease in net longs. Eleven said an increase in net longs and only three said a reversal to net shorts.

“One thing that’s happened this year is investors have had a hard time playing with the dollar and they’re looking for trades that…take the dollar out of it. I think that’s the way it will continue to lean,” said Dan Tobon, head of G10 FX strategy at Citi.

“Over the coming three months, we’ll have a marginally weaker dollar, but not get the type of flows that really create stretched positioning situations off the back of that.”

While currency strategists still expected the greenback to weaken against most major currencies over a 12-month period, median forecasts showed no big change to analysts’ predictions from a February poll.

The euro, down around 1.5% for the year, was forecast to gain 3.0% to trade around USD 1.12 in a year. The common currency was last changing hands around USD 1.09 on Wednesday.

Even the battered Japanese yen, which has lost nearly a third of its value since 2021, was expected to gain over 9.0% in 12 months to trade at 137.00/dollar.

After failing to make any headway against the greenback in 2023, the Aussie and Kiwi dollars were predicted to gain around 7.3% and 5.0% respectively, recouping their 2024 losses and trading higher against the US dollar in coming months.

The Australian dollar and the New Zealand dollars – last trading around USD 0.65 and USD 0.61, respectively, on Wednesday – were forecast to rise to USD 0.70 and USD 0.64 by end-Feb.

(Reporting by Hari Kishan; Polling by Sujith Pai, Pranoy Krishna and Veronica Khongwir; Editing by Ross Finley and Sharon Singleton)

Risk rally comes to shuddering halt

March 6 – Maybe some of the recent exuberance was of the irrational variety.

The selloff across risk assets on Tuesday will almost certainly put Asian markets on the defensive on Wednesday: Asian stocks had their worst day since January, the Nasdaq lost 1.7%, and bitcoin slumped 9% after briefly touching a new high.

The regional calendar includes South Korean inflation and Australia’s fourth-quarter GDP, while China’s annual National People’s Congress continues into its second day.

But Wednesday’s tone will likely be set by Tuesday’s global market moves.

The ‘risk off’ nature of Tuesday’s trading was underscored by the fall in Treasury yields to one-month lows and gold rising for a fifth day to an all-time high of USD 2,141 per ounce.

There were several drivers behind the selloff, including weak US service sector figures, caution ahead of Fed Chair Jerome Powell’s Congressional testimony on Wednesday, and a suspected arson attack at Tesla’s Gigafactory in Berlin.

Perhaps most alarming, however, was the report by research firm Counterpoint that Apple’s iPhone sales in China fell 24% year-on-year in the first six weeks of this year, during which time domestic rival Huawei saw unit sales rise by 64%.

This could fan fears of a slowdown in demand for the US company, whose revenue forecast for the current quarter was USD 6 billion below Wall Street expectations. China, Hong Kong and Taiwan account for around a fifth of Apple’s total sales.

It is also a reminder of the trade tensions between the United States and China, which could intensify further if Donald Trump gets the keys to White House again and follows through on his pledge to slap huge tariffs on Chinese goods.

Investors will have noted official reports in China that Beijing is targeting annual GDP growth this year of around 5% and aims to increase defence spending by 7.2%.

Staying in China, struggling property developer China Vanke said it has funding in place to repay USD 630 million in dollar notes due next week, amid more selling pressure on its bonds as concern mounts over its liquidity.

China’s No.2 property developer by sales said the repayment process was “orderly”. But again, this is just a reminder of the deep hole China’s property sector is in.

Yet Chinese stocks rose for a fifth day – the CSI 300 index of blue chips is now up 13 out of the last 15 days – and the 10-year Chinese government bond yields slid to a new all-time low.

According to Reuters polls, data on Wednesday should show Australia’s GDP grew at a 1.4% annual pace in the final quarter of last year, compared with 2.1% in the prior quarter, while annual inflation in South Korea inched up to 2.9% in February from 2.8%.

Here are key developments that could provide more direction to markets on Wednesday:

– China National People’s Congress

– Australia GDP (Q4)

– South Korea inflation (February)

(By Jamie McGeever)

Oil falls 1% on concerns over China’s economic growth plan

NEW YORK, March 5 – Oil prices fell nearly 1% on Tuesday, pressured by skepticism around China achieving its economic growth target and investors’ declining risk appetite despite support from a weaker US dollar.

Brent crude futures settled 76 cents, or 0.9%, lower at USD 82.04 a barrel, their fourth straight decline. US West Texas Intermediate crude futures fell 59 cents, or 0.8%, to USD 78.15 a barrel.

Both benchmarks had dropped by more than a dollar during the session.

Weighing on prices, China, the world’s biggest oil importer, set an economic growth target for 2024 of around 5%. While the target is similar to last year’s goal and in line with analysts’ expectations, the lack of big-ticket stimulus plans to prop up the country’s struggling economy disappointed investors.

“The growth target is OK, but the missing part is how they want to achieve that – what sort of stimulus is unclear for now,” UBS analyst Giovanni Staunovo said.

Risk-off sentiment in the broader financial markets also put pressure on prices, Staunovo added. Gold prices hit a record high on Tuesday on rising bets for a US interest rate cut in June, while Wall Street fell on weakness in megacap stocks.

Providing some support to oil prices, the US dollar slipped on easing growth in the services sector. A cheaper greenback typically supports oil prices by lifting demand from investors holding other currencies.

“Beyond that, the market is really just looking for the next headline here, with the upcoming storage reports in focus,” Mizuho analyst Robert Yawger said.

The first of this week’s two US inventory reports, from the American Petroleum Institute industry group, showed US crude stocks rose by 423,00 barrels in the week ended March 1, market sources said, much smaller than the increase of 2.1 million barrels expected by analysts in a Reuters poll.

Official data from the US Energy Information Administration is due on Wednesday at 10:30 a.m. ET (1530 GMT). If the EIA reports a crude storage build, it will be the sixth straight week of rising oil stocks in the country.

(Reporting by Shariq Khan, Alex Lawler, Natalie Grover, Georgina McCartney, and Sudarshan Varadhan; Editing by Jason Neely, Will Dunham, Mark Potter, Aurora Ellis, Marguerita Choy, and David Gregorio)

10-year yields fall to one-month low

March 5 – Benchmark 10-year US Treasury yields fell to a one-month low on Tuesday after data showed US services industry growth slowed slightly and as investors prepared for US jobs data for February due on Friday for further clues on Federal Reserve policy.

Traders will also be focused on testimony by Fed Chair Jerome Powell to Congress on Wednesday and Thursday for any fresh clues on monetary policy.

US services industry growth slowed a bit in February amid a decline in employment. A gauge of prices paid for inputs by businesses also fell to 58.6 from an 11-month high of 64.0 in January.

“The services number is the area the Fed is more focused on,” said Ellis Phifer, managing director of fixed income research at Raymond James in Memphis, Tennessee, adding that the inflation and employment components “are some of the biggest factors.”

A drop in yields before the data also reflects investors positioning ahead of Friday’s jobs report.

“The market is repricing itself ahead of that number,” Phifer said.

Employers added an estimated 200,000 jobs last month, according to economists polled by Reuters.

It will follow much stronger-than-expected gains of 353,000 jobs in January that analysts have said was likely due in part to seasonal factors.

Other economic releases due this week will include the Job Openings and Labor Turnover Survey (JOLTS) on Wednesday.

Traders are evaluating when the US central bank is likely to begin cutting interest rates as growth remains relatively strong and inflation gets closer to the Fed’s 2% annual target.

Fed funds futures traders see a 71% probability that the Fed will begin cutting rates in June, up from 64% on Monday, according to the CME Group’s FedWatch Tool.

Benchmark 10-year yields were last down 8 basis points on the day at 4.137% and got as low as 4.112%, the lowest since Feb. 8.

Two-year yields dropped 6 basis points to 4.550%. The inversion in the yield curve between two-year and 10-year notes deepened by 2 basis points to minus 42 basis points.

The Fed accepted USD 444.47 billion in its reverse repurchase agreement operation on Tuesday. Banks and investors have been cutting the amount they loan to the Fed’s reverse repo facility as they find other securities with more attractive rates.

(Reporting by Karen Brettell; editing by Jonathan Oatis and Will Dunham)

Mounting US rate cut bets fuel gold to record highs

March 5 – Gold scaled a record high on Tuesday, moving further above USD 2,100 per ounce in a rally sparked by growing bets for a US interest rate cut in June and on safe-haven demand due to the conflict in the Middle East.

Spot gold gained 0.8% to USD 2,132 per ounce as of 02:13 p.m. ET (1913 GMT), having hit a record USD 2,141.59 earlier.

US gold futures settled about 0.7% higher at USD 2,141.9.

Bullion last hit a record high in December at USD 2,135.40.

“The big reason here is that we’re seeing the market increasingly believing that a Fed rate cut is nearer rather than further away,” said Bart Melek, head of commodity strategies at TD Securities.

“Markets have to be a little bit more convinced for gold to move higher, but ultimately in the second quarter, we do think it can go to over USD 2,300 plus.”

Gold, often used as a safe store of value during times of political and financial uncertainty, has climbed over USD 300 dollars since the start of the Israel-Hamas war.

“Geopolitical risks emanating from the Red Sea and a year with a dense election calendar globally will likely see continued strength in retail demand for gold,” Nitesh Shah, commodity strategist at WisdomTree, said.

“We wouldn’t be surprised if gold gives back some of these gains as the US Federal Reserve talks down imminent cuts, but once rate cuts look certain, we expect gold to trade significantly higher.”

Fed Chair Jerome Powell’s congressional testimony on Wednesday and Thursday will be closely watched for more clarity on the US interest rate path. The next major US economic release will be February’s employment report due on Friday.

Traders currently see a 70% chance that the Fed will start cutting rates by June, according to the CME FedWatch tool.

Gold is pressured when high interest rates to tame inflation raise returns on competing assets such as bonds and boost the dollar, making the precious metal costlier for overseas buyers.

Spot silver eased 0.8% to USD 23.70 per ounce, having hit its highest since Dec. 28 earlier in the session.

Other precious metals fell, with platinum slipping 1.8% to USD 881.23 per ounce, and palladium shedding 1.1% to USD 949.68.

(Reporting by Anjana Anil and Ashitha Shivaprasad in Bengaluru; Additional reporting by Swati Verma; Editing by Veronica Brown, Shailesh Kuber, Tasim Zahid, and Shounak Dasgupta)

Investors in China stick to bargains as fiscal bazooka proves elusive

SINGAPORE, March 5 – Foreign investors returning to China’s recuperating stock markets say spending plans announced on Tuesday are not enough to turn battered sentiment around, and the main reason to keep buying shares for now is because they are cheap.

Money managers hunting for bargains have been trickling back into mainland stocks since February, after China replaced its stock market regulator and tightened rules around speculation, leading to a sharp but fragile recovery in the market.

Few had held out hopes the National People’s Congress (NPC), China’s rubber-stamp parliament, would unleash a torrent of cash big enough to buoy markets and the mood right away.

But those expecting solid spending plans to reach a growth target of 5% were disappointed as authorities stuck to a familiar script about managing risks in the property sector and municipal debt and spurring “worry-free consumption”.

China plans to run a budget deficit of 3% of economic output, down from a revised 3.8% last year, belying the fiscal shot-in-the-arm some had hoped for to fuel a recovery.

“Investors need to see policies that could improve governance and final demand, but neither seem to be on offer so far at the NPC,” Ken Peng, head of investment strategy in Asia at Citi Global Wealth, said in an email to Reuters.

Mainland equities were steady on Tuesday, helped by signs of state-backed buying, and Hong Kong’s Hang Seng fell 2.6%. The yuan held its ground.

Mainland China stockmarkets lost about USD 2 trillion in market value in the year to Jan. 31, with foreign investors’ net selling of 112 billion yuan (USD 15.6 billion) over the period drawing down exposures of global money managers to the lowest levels for years.

They have since bought stocks worth 48.3 billion yuan and China’s blue-chip CSI300 Index has bounced nearly 15% off the five-year lows it hit last month.

But where global investors were once happy to park slabs of their portfolios in China for the long term, many are running smaller and nimbler “tactical” books offering exposure to short-term bounces while holding back on larger strategic stakes.

“There is a degree of anticipation as to when all of these collective measures will start making a lot of sense and moving markets and moving asset prices,” said Niraj Athavle, J.P. Morgan’s head of sales and marketing in Singapore.

“I wish I could tell you what exactly would be the single point that triggers it … but I don’t think any such trigger exists.”

FINDING A FOOTING

Investors, both foreign and domestic, are being selective in buying stocks but only in sectors such as electric vehicles and technology, says Winnie Chiu, senior director and investment adviser at Indosuez Wealth Management.

These sectors lie at the heart of China’s quest for self-sufficiency.

Mainland markets are also cheap. The 12-month forward price-to-earnings ratio, a widely used valuation measure, is just around 10 for the CSI 300, half the levels for S&P 500 and Japan’s Nikkei.

Aninda Mitra, head of Asia macro and investment strategy at BNY Mellon Investment Management, says the plan for a year-long trade-in program for consumer goods is one short-term positive driver for the stock market.

That and the cheapness of the stock market and light foreign investor positioning is a short-term opportunity but “in our mind, long-term doubts and uncertainties linger,” said Mitra, who prefers to remain structurally underweight China.

Still, enough has been done to at least stop the carnage, analysts say and Steve Lawrence, chief investment officer at Balfour Capital, who manages USD 300 mln across different funds, sees money flowing back into Chinese stocks.

“The reality is when there’s fear, or there’s a sense of fear, the smart money, the real money, always buys. If you take a step back, China is still growing, it will continue to grow,” Lawrence said.

“It’s just the beginning of a massive biblical move. When you have such a divergence – the Nasdaq at all-time highs and where the Hang Seng is – there will be a teeter-totter.”

(USD 1=7.1982 yuan)

(Reporting by Ankur Banerjee and Tom Westbrook; Additional reporting by Samuel Shen and Summer Zhen; Writing by Vidya Ranganathan; Editing by Clarence Fernandez)

Japan’s Nikkei ends flat on dip-buying as index slips from peak

TOKYO, March 5 – Japan’s Nikkei share average erased most of its early losses to end flat on Tuesday as investors bought stocks on dips after the benchmark index slipped from a record high.

The Nikkei inched down 0.03% to 40,097.63, narrowing most of its 0.7% loss earlier in the session.

“Investors bought back stocks on dips. Overall, the market was firm. The Nikkei fell today just because those stocks which lifted the Nikkei declined,” said Naoki Fujiwara, senior fund manager at Shinkin Asset Management.

After five consecutive weeks of gains, the Nikkei breached the 40,000 level for the first time on Monday and has risen nearly 20% so far this year.

Chip-testing equipment maker Advantest slipped 2.64%, weighing the most on the Nikkei, while chip-making equipment maker Tokyo Electron reversed course to end 0.41% higher to become the biggest support for the index.

“Investors sold the chip-related shares, which were heavily bought in the rally after Wall Street fell overnight,” said Jun Morita, general manager of the research department at Chibagin Asset Management.

The three main indexes in the United States ended lower overnight as investors took a pause ahead of economic data and Federal Reserve Chair Jerome Powell’s congressional testimony.

The broader Topix cut its early losses to end 0.5% higher at 2,719.93.

Obayashi Corp surged 18% to a daily limit high after the general contractor raised its dividend forecast. Peers Kajima Corp and Taisei Corp rose 6.49% and 8.81%, respectively.

The construction sector rose 2.96% to become the top performer among the Tokyo Stock Exchange’s 33 industry sub-indexes.

Fast Retailing edged up 0.25% after the Uniqlo-brand clothing store operator said its existing store sales in February rose 7.2% from a year earlier.

Of the 225 Nikkei components, 124 stocks rose and 99 fell, while two were flat.

(Reporting by Junko Fujita; Editing by Rashmi Aich and Sohini Goswami)

Dollar a spectator to China news, yen ponders rate risks

SYDNEY, March 5 – The dollar held steady on the yuan on Tuesday as markets digested a welter of policy statements out of China, while a rebound in Tokyo inflation seemed to take Japan a step closer to the end of negative interest rates.

There was more action in bitcoin BTC=, which gained 1.2% to USD 68,341 after surging more than 7% on Monday. The blockchain asset has benefited from flows into cryptocurrency exchange-traded funds, most notably in the United States.

Early news out of China’s National People’s Congress (NPC) contained few surprised with Beijing sticking with an economic growth target of 5% and a budget deficit of 3%.

Analysts say meeting the target will be a challenge as a protracted property crisis, low consumption, slow global growth and geopolitical tensions drag on activity.

The yuan was little changed at 7.1987, as markets hoped more concrete stimulus measures would emerge.

The Japanese yen held steady after data showed Tokyo core inflation sped up to 2.5% in February, from 1.8% the previous month. The measure excluding food and energy did slow to 3.1%, but stayed above the Bank of Japan’s 2% target.

“Inflation jumped to well above 2% and will remain around that level for a few months,” by Marcel Thieliant, head of Asia-Pacific at Capital Economics. “Accordingly, we’re sticking to our forecast that the Bank of Japan will hike interest rates into positive territory next month.”

Many analysts expect rates to rise to zero in April after Japan’s wage round ends.

The dollar was a fraction lower at 150.44 yen , having again shied away from resistance around 150.85, which has capped the currency for more than three months now.

A break higher would open the way to November’s top at 151.92, but would also run the risk of provoking Japanese intervention to buy the yen.

Markets currently imply around a 64% chance the Federal Reserve will start cutting U.S. rates in June and ease by around 75 basis points this year.

Fed Chair Jerome Powell has a chance to update investors on his own outlook when he appears before lawmakers on Wednesday and Thursday.

The euro idled at USD 1.0853, having tested resistance around USD 1.0866. The dollar index, which measures the currency against six major peers, was unchanged at 103.840.

The European Central Bank (ECB) holds a meeting on Thursday and markets are convinced it will keep rates at 4.0%. Futures imply an 88% probability that cuts will start in June and have priced in 89 basis points of easing for 2024.

“The persistence of sticky services CPI and signs of services picking up more broadly in survey data suggest that ECB will continue to highlight patience and further maintaining of restrictive policy,” argued analysts at Westpac.

“After holding tests below USD 1.0800 last week, EUR/USD looks set to test the USD 1.0900-50 area, the middle its range since late December.”

Sterling steadied at USD 1.2692 ahead of the British budget on Wednesday. Finance Minister Jeremy Hunt has been trying to dampen speculation about big pre-election tax cuts.

(Reporting by Wayne Cole. Editing by Sam Holmes.)

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