USD rebound fragile as CPI looms

USD outlook: Cautiously bullish

Recent geopolitical events like the U.S. military airlifting embassy staff out of Haiti and warning of an extremist plot in Moscow have created some safe-haven demand for the dollar. However, market sentiment remains mixed ahead of key U.S. inflation data on Tuesday. The CPI is expected to remain elevated in February on higher gasoline prices, though core inflation likely moderated further. A hotter-than-expected inflation print could push back expectations for Fed rate cuts and boost the dollar, while a softer reading may weigh on the greenback. Overall, the dollar index is trading steady around 102.8 but its recovery appears vulnerable.

EUR outlook: Neutral to slightly bullish

The euro has extended gains above $1.09, its strongest level since mid-January, supported by broad dollar weakness and somewhat dovish remarks from Fed Chair Powell. The ECB maintained rates at record highs in March, citing persistent underlying inflation pressures. However, it revised down its inflation projections and President Lagarde hinted discussions are beginning on easing the bank's restrictive stance. Mixed signals from Eurozone and U.S. economic data could result in a consolidation for EUR/USD in the near-term.

CHF outlook: Neutral

The Swiss franc is holding steady around 0.88 per USD, rebounding from a three-month low touched in February amid signs of resilient economic growth. Swiss GDP expanded more than expected by 0.3% in Q4 2023, erasing urgency for imminent rate cuts by the SNB. However, inflation continues to moderate, falling to 1.2% in February, the lowest in over two years and below the SNB's 2% target for seven straight months. The SNB is likely to keep rates on hold at 1.75% in March as it monitors the inflation path.

NZD outlook: Neutral to slightly bearish

The New Zealand dollar has appreciated to two-week highs around $0.618 amid growing expectations the Fed will cut rates earlier than other major central banks. However, the RBNZ's own dovish bias may cap gains in the kiwi. RBNZ Chief Economist Conway noted that NZD strength from Fed easing could bring down inflation and force the RBNZ to cut rates sooner than anticipated. The RBNZ held rates at 5.5% in February and lowered its forecast for a peak in rates to 5.6% from 5.7%. Weak NZ economic data like a 0.3% GDP contraction in Q3 2023 may also weigh on the currency.

GBP outlook: Neutral

The British pound saw a slight dip to $1.28 after reaching a seven-month high above $1.28 last week as investors digested mixed UK jobs data. Wages ex-bonuses rose 6.1% in the three months to January, the slowest pace since October but near forecasts. The unemployment rate ticked up to 3.9%, above expectations, while job vacancies continued to decline. Markets expect the BoE to begin cutting rates in August, though persistent wage pressures may delay this timeline. The pound's direction will hinge on incoming UK data as well as the Fed's rate path.