The DXY Index rose by 0.1% at 103.9 overnight, slightly above Friday’s close of 103.84. As markets move from downgrading US exceptionalism towards US recession fears, the greenback could transition from being sold off to being sought after as a haven currency. For now, JPY and CHF are still preferred havens. Emerging Asian and commodity-led currencies remain vulnerable to global slowdown worries.
US recession fears hammered the S&P 500 (-2.7%) and the Nasdaq Composite (-4%) indices to six-month lows. The VIX volatility index rose 19.2% to 27.9, slightly above the previous high of 27.62 on December 18. US President Donald Trump spooked investors with his weekend comment that the US economy would enter “a period of transition” from tariffs.
Investors sought safety in bonds, sending the US Treasury 10Y yield lower 8.8 bps to 4.213%, below last Monday’s 4.155%. Although the Fed flagged that it would keep rates unchanged at 4.25-4.50% at the FOMC meeting on March 18, the futures markets increased bets for a rate cut at the next May 7 meeting, followed by two more cuts in 3Q25. With the markets bringing forward rate cuts, the yield curve (10Y-2Y differential) steepened by 2.7 bps to a one-month high of 30.1 bps.
The New York Fed reported that tariff fears drove 1Y inflation expectations higher to 3.1% in February from 3% in January. At the same time, the 3Y and 5Y expectations were unchanged at 3%; recent retaliatory tariffs risk transforming the assumption of one-off inflation into more persistent inflation.
EUR/USD consolidated within a tight 1.08-1.09 range overnight. European stocks were not spared by the growth fears that hammered US equities. The pan-European Stoxx 600 Index fell a third session by 1.3% to a month’s low of 546.2. EU bond yields are also susceptible to declining with their US counterparts. The “ReArm Europe” plan that bolstered the EUR by 4.4% last week has hit a hurdle. In Germany, the Green Party has rejected the plan to relax the debt brake and support the EUR500bn infrastructure fund. The CDU/CSU and Social Democrats are working towards forming a “grand coalition” government and need the Greens to provide the two-thirds super majority in the Bundestag to pass the plan. Even if a compromise could be found with the Greens, the coalition still needs to win over the Free Democratic Party to get the two-thirds majority in the Bundesrat. The CDU/CSU and SPD want to get the support of the Green and FPD parties before the new Bundestag session starts on March 25th because the far-right opposition AfD party has lodged a motion with the constitutional court to block the outgoing parliament from debating the plan.
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Warren Buffett
March 11 in history
In 2011, Japan was hit by a massive earthquake that severely damaged the Fukushima Daiichi nuclear power station.
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