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The yuan’s sharp rebound this morning triggered some attention, if only because other news was so limited today. USD/CNY shot up last Friday on signals that Chinese authorities loosened their grip on the 7.2 handle it defended for several months. Clearly they weren’t expecting nor hoping for such an abrupt move. Such large fluctuations could pose threats to financial stability, tarnishing CNY reputation. The authorities including the PBOC send a clear message through a significantly stronger fixing. USD/CNY declined back to 7.2 before paring losses in European/US dealings again to 7.21. Sticking to the region, Japan’s vice finance minister for international affairs Kanda told reporters that the “current weakening of the yen is not in line with fundamentals and clearly driven by speculation.” Regarding direct interventions, Kanda said they are always prepared. USD/JPY eases to 151.15, but remains just inches away from the multidecade yen-lows of 151.95. It is also as much JPY appreciation as it is USD depreciation. DXY loses a few ticks but remains north of the 104 barrier. EUR/USD rebounded from the low 1.08 towards 1.0836. Sterling tries to build on Friday’s momentum, when a technical leap beyond 0.86 by EUR/GBP failed and triggered some return action lower instead. The currency pair currently eases to 0.8568. GBP/USD bounces of the 1.26 level to 1.264. Central European currencies are generally well bid though they are off their intraday highs. The forint takes center stage this week with the Hungarian central bank (MNB) meeting tomorrow. The Hungarian currency slid ever since the central bank jacked up the cutting pace from 75 to 100 bps and the feud between the government and the MNB escalated. On the latter, it became official today that the government will delay the hotly contested supervision law until the autumn. But with EUR/HUF (396.5) nonetheless moving dangerously close to the 400 symbolical level, we wouldn’t be surprised to see the MNB already revert to 75 bps of rate cuts. Off-bets for a 50 bps move circulate as well.

Core bonds lose some ground at the start of the new week, returning some of Friday’s (outsized) gains. US yields add between 3.6 and 4.4 bps. Atlanta Fed Bostic in a speech today repeated he expects just one rate cut if the economy evolves as expected. Goolsbee from Chicago said he needed to see more progress in inflation coming down. According to him, the main puzzle is in housing. He added that the current dot plot’s suggestion of three cuts this year was in line with his thinking. German Bunds marginally underperform with yields strengthening 3 (30-y) to 5 bps (5-y).

News & Views

The Dutch government this morning announced that last year’s budget deficit was only 0.3% of GDP, in line with the 0.1% of GDP shortfall in 2022. That’s significantly below the 1.8% deficit estimated in November. The government debt ratio declined from 50.1% of GDP to 46.5% which is the lowest level of the past 30 years apart from 2006 (45.2%) and 2007 (43%). On both metrics, the Netherlands easily beat the Maastricht criteria (<3% and <60%), significantly outperforming other EMU countries and bucking the global trend of huge fiscal stimulus. Government spending and government income respectively increased by 8% (to €449.5bn) and 7% (to €445.9bn) in 2023.

The composite Czech consumer & business confidence indicator rose from 90.6 to 94.2 in March, its highest level since May of last year. Both consumer confidence (99.9 from 94; best since October 2021) and business confidence (93 from 89.9) improved. Amongst entrepreneurs, confidence only deteriorated in the construction sector. Consumers sounded less pessimistic on the economy in the next 12 months while the number fearing a deterioration in their financial situation over the same time period did increase significantly. The share of consumers who believe that the current time is not suitable for making major purchases has not changed compared to the previous month.

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