FED: Market Pricing Nearly 3 2025 Cuts As Conditions Tighten
Amid rising government policy uncertainty, sentiment among businesses and consumers has fallen sharply since the start of the year, while equities and the dollar have reversed their post-election rise. Overall, financial conditions have tightened, even if stress is not yet mounting, e.g. no major widening of credit spreads (the accompanying chart shows the Fed’s financial conditions impulse index but only through January).
- Combined with growth fears, this has affected expectations for the Fed’s rate path, with around 18bp more cuts expected in 2025 compared with what was seen after the January FOMC. 65bp of cuts are priced for the year as a whole. 2025 cut pricing reached 71bp before the February inflation data and 76bp before the February payrolls report.
- A rate cut is seen with near zero probability for March’s meeting, but the first full cut is just about priced for June, with a second nearly priced by September.
- Chair Powell has no reason to endorse or refute these expectations – he’s likely to be happy with a press conference that ends with little discernable change in pricing.
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ASIA STOCKS: Coming Up In The Asia-Pac Session On Thursday
| 2145GMT | 0545HKT | 0845AEDT | New Zealand Jan Card Spending Retail |
| 2205GMT | 0605HKT | 0905AEDT | US Fed's Waller Speaks on Stablecoins |
| 2350GMT | 0750HKT | 1050AEDT | Japan Jan PPI |
| 0000GMT | 0800HKT | 1100AEDT | Australia Feb Consumer Inflation Expectation |
| 0000GMT | 0800HKT | 1100AEDT | Australia to Sell A$150 Million 2.5% 2030 Inflation-Linked... |
| 0001GMT | 0801HKT | 1101AEDT | UK Jan RICS House Price Balance |
| 0110GMT | 0910HKT | 1210AEDT | Japan Rinban Operations |
| 0200GMT | 1000HKT | 1300AEDT | New Zealand 1Q 2Yr Inflation Expectation |
| 0300GMT | 1100HKT | 1400AEDT | South Korea Dec Money Supply |
USDCAD TECHS: Support Remains Intact For Now
- RES 4: 1.5000 Psychological round number
- RES 3: 1.4948 High Mar 2003
- RES 2: 1.4814 High Apr 2003
- RES 1: 1.4600/1.4793 Round number resistance / High Feb 3
- PRICE: 1.4309 @ 16:16 GMT Feb 12
- SUP 1: 1.4270 Low Feb 5
- SUP 2: 1.4261 Low Jan 20 and a key support
- SUP 3: 1.4178 High Nov 6 ‘24
- SUP 4: 1.4120 Low Dec 11
USDCAD is trading in a tight range and closer to recent lows. For now, the latest move down appears corrective and the primary uptrend remains intact. The Feb 3 cycle high reinforces and strengthens bullish conditions. The break higher confirmed a resumption of the uptrend and opens 1.4814 next, the Apr 2003 high. Key support to watch lies at 1.4261, the Jan 20 low. A clear breach of this level would alter the picture and signal a reversal.
US TSYS: Rise in Core/Supercore CPI, But Wait Until Thursday's PPI: Powell
- Treasuries gapped lower after unexpected rise in January Core/Supercore CPI inflation data Wednesday, 10Y yield climbing to 4.6576% high on heavy volumes.
- Fed chair Powell cautions against getting "excited" about today's CPI report ahead of PPI (Thursday 0830ET), reminding that the latter report carries potentially different implications for the Fed's preferred PCE gauge: "The CPI reading was above almost every forecast.
- Treasury Mar'25 10Y futures trade 108-09 (-21.5) after the bell, above initial technical support at 108-00 (Low Jan 16); curves mixed: 2s10s +2.413 at 26.981, 5s30s -1.858 at 35.507. Tsy 10Y auction didn't help matters as the new supply tailed: drawing 4.632% high yield vs. 4.622% WI; 2.48x bid-to-cover vs. 2.53x prior.
- Nevertheless, projected rate cuts through mid-2025 continue to recede vs. this morning's pre-CPI levels (*) as follows: Mar'25 at -0.5bp (-0.7bp), May'25 at -3.2bp (-6.3bp), Jun'25 at -9.1bp (-13.9bp), Jul'25 at -12.6bp (-18.9bp).
- Weaker yen, with EURJPY’s 1.85% rally particularly standing out. Price dynamics kickstarted across the APAC session but were then bolstered by a hotter-than-expected US CPI report.
