Leading into the release of the IMF’s World Economic Outlook (9am EST) there is building unrest in Ukraine but only a modest market reaction. European equities were weak as bond yields rose; while the USD is broadly weaker. Yesterday the market continued to price in developments as generally encouraging, maintaining the currentpace of Fed tapering; but not strong enough to pull forward the expectations for the first Fed interest rate hike. Accordingly, U.S. 2-year yields dropped briefly to 0.39%, while 10-year yields dipped below 2.7%. On March 19th, 2-year yields jumped up from a low of 0.33% to 0.44% since then economic data has supported a recovery, but not one sostrong as to pull forward interest rate expectations further, accordingly US 2yr yields have drifted back below 0.40% (see chart) and the USD has also softened. For the USD it is the outlook for the FOMC, namely the beginning of the interest rate cycle, that matters and this is driven by economic fundamentals, making data releases the key.
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Scotiabank