Patatras The information presented in this publication is provided solely for informational purposes and does not constitute investment advice, an offer to sell, or a solicitation to buy, and should in no case serve as a basis or be considered as an incentive to engage in any investment. The macro point Those who thought that 2024 would be the year of the dollar's decline have been wrong so far. It is now clear that the Fed will not cut its rates next June. The rate differential that will develop between the United States and the rest of the world argues for maintaining a strong dollar. This is bad news for all U.S. trading partners. 'If inflation persists, the Fed can keep the rates unchanged as long as necessary.' This was the shocking statement of last week. It was made by the Fed Chairman, Jerome Powell. It confirms what the foreign exchange market has known for a while: the Fed will lower its rates much later than the other G10 countries' central banks. Subsequently, the U.S. sovereign bond yield jumped to a high point since November 2023, and the U.S. dollar continued to gain. The dollar index, which measures the dollar's evolution against the currencies of the United States' main trading partners, returned to its level from early November 2023. It is now certain that the Fed will ultimately not start the rate-cutting cycle in June. This was, however, the central scenario of the market until recently. Similarly, the extent of the rate cut is expected to be very limited in 2024. At the beginning of January, the consensus was betting on eight rate cuts. Now, it predicts only two. Worse, some analysts believe that the Fed might simply not cut its rates this year. In a note that did not go unnoticed last week, the strategists at Bank of America indicated they expect the monetary status quo to last until... March 2025! This does not seem credible to us. Nonetheless, it highlights how persistent inflationary tensions are across the Atlantic, complicating forecast exercises considerably. Even the Fed seems powerless against the resurgence of inflation. This is explained both by inflation in services—we mentioned this last Monday—but also by a recovery of the price-wage loop. An American who decides to change jobs today can expect an average salary increase of 10%. That's enormous. What's the consequence for the currency market? A strong dollar should remain the norm. It is known that one of the factors that most influences exchange rates is the rate differential. It is evident that it is very clearly in favor of the dollar. An investor can claim to invest their money in the United States at 5% while in the eurozone the cost of money is at 4% and should drop as early as June. We can't fight against that. Let's also add the outperformance of the U.S. economy, the capital flows directly to the U.S. stock market, the productivity gains of the U.S. energy sector, and we have a perfect cocktail for a continued rise of the dollar. For once, by the way, the strength of the dollar does not seem to be a concern in Washington. On the other hand, it is a problem for U.S. partners. The euro is obviously penalized. But the situation is much worse in Asia. The Japanese yen is collapsing. It has reached a 34-year low against the dollar. The Vietnamese dong has reached a historic low against the greenback. As for the South Korean won, the data on speculators' positioning indicates it has never been so oversold for 13 years. In short, a world of a strong dollar is a problem for everyone except the United States. Fortunately, inflation is retreating in other parts of the world. The good news last week is the drop in inflation in Canada. Core inflation fell back to 1.25% on average over the last three months. This is a very positive signal. For us, this opens the door wide to a rate cut as early as June by the Bank of Canada (along with the European Central Bank and the Swiss National Bank). Inflation is also somewhat declining in the United Kingdom, but more data will certainly be needed to know when the Bank of England can act. A rate cut is excluded next May. However, there is a debate between June and August (we lean more toward the latter option considering the latest statistics). The timing of the rate cut should not significantly influence the British pound. The EUR/GBP pair has been in a range situation for several months now. Technical point In the foreign exchange market, the hegemony of the U.S. dollar is indisputable and we don't think this will change anytime soon. This argues for a continuation of the EUR/USD decline. We now believe that a test of the 1.05 zone is possible in the medium term, especially after the European Central Bank's rate cut next June. Beware of the Japanese yen. The strong depreciation against almost all currencies (dollar, euro, and yuan) reinforces the scenario of a direct intervention by Tokyo in the foreign exchange market. Therefore, think about hedging in case of exposure to the currency as erratic movements could occur soon. The supports and resistances shown below indicate the lows and highs within which prices should evolve during the week.Weekly SupportsWeekly ResistancesS2S1R1R2EUR/USD1.05041.05901.07441.0854EUR/GBP0.83440.84010.86010.8655EUR/CHF0.95800.96540.98330.9903EUR/CAD1.44551.45011.47881.4834EUR/JPY162.55163.01165.55166.02 Announcements to follow On the agenda this week: the Bank of Japan meeting and the core PCE index for the United States. The Bank of Japan has not closed the door on another rate hike this year. In any case, it will not intervene this week. We know Japan is engaged in a normalization policy with fine-tuning. Be careful regarding the publication of the core PCE index this Friday. The calculation methodology is very different from that of the Consumer Price Index (CPI). Therefore, the strong inflationary tensions observable in the last CPI publication should not be perceptible in the core PCE. This does not change the situation from the perspective of monetary policy across the Atlantic. Below are the publications and events that should have a major impact on the evolution of exchange rates.DayTimeCountryIndicatorWhat to Expect?04/23/202415:45USAManufacturing and Services PMIs (April)Both expected in expansion territory (> 50).04/24/202410:00GERIFO Index (April)Previous at 87.8.04/26/202405:00JPNCentral Bank MeetingA new rate hike is unlikely, at this stage.04/26/202414:30USACore PCE Index (March)Previous at 2.8% year-on-year.