Good Friday AM,

It has been a good week in the rate markets.

Bonds continuing to rally. Economic data (Industrial Production and Capacity Utilization) in a little weaker than expected today. I don’t think that is having much of an impact on the market as people are still talking about the Fed pivoting. The 10yr is down to 3.92% today. Markets are settling in for a 2024 with a Federal Reserve that’s more dovish on rate cuts than other central banks. The European Central Bank’s policymakers have been pushing back further, urging patience and data-dependence before any rate reductions emerge. US stock futures are edging higher again, with most indexes hitting or getting close to record highs and the S&P 500 on track for its seventh consecutive weekly advance. Treasury yields are slipping, and the dollar is marginally stronger.

This was an interesting piece to me.

You/I would expect the US dollar value to soften when rates drop. As most of us don’t trade currencies, I don’t know this means a lot in investment terms, but it will mean something if you plan on traveling. Mostly I wanted to include this to share how interconnected markets are.

One notable absence in the everything rally that has ensued from this week’s great monetary pivot of 2024 is the dollar.

It was the best Federal Reserve day across assets in almost 15 years, according to Bloomberg data crunched by my colleague Lu Wang. But that came at the expense of the US currency, which is now set for its first annual loss since the pandemic.

It’s testament to the role the dollar has come to play, particularly in the back half of this year: a reflection of US rate expectations. With traders pricing nearly six quarter-point rate cuts in 2024, it’s no wonder the greenback has headed south. That weakness is further amplified by the fact that the Bank of England and European Central Bank struck a more hawkish tone than the Fed. Yet it’s this very contrast that could be key to the dollar’s recovery. Unlike their US counterpart, which looks to be getting ever closer to engineering a soft landing, the BOE and ECB are very much confronting the risk of economic stagnation — possibly even a recession.

In the UK, the central bank expects no growth in the fourth quarter, a downward revision from its November forecasts. Meanwhile, economists surveyed by Bloomberg expect the euro area to succumb to its first recession since the pandemic in the final months of 2023. Such a scenario is bound to re-galvanize the rush to rate-cut bets for the BOE and ECB in 2024, which will likely heap pressure on their respective currencies. And in that scenario, the dollar — which is already pricing more reductions than the Fed’s dot-plot projects — has a path to coming out on top once again.

Please remain safe and stay healthy, enjoy the weekend, and first, make today great!