The Japanese yen remains in focus, with USD/JPY nearing multi-decade lows from 2022 and EUR/JPY hitting its highest level since 2008. The Bank of Japan’s cautious move away from ultra-easy monetary policy has backfired, leading to speculation about future rate hikes. BoJ Governor Ueda hinted at potential policy responses if the yen significantly impacts the outlook, raising concerns in the market.

Ahead of the March Fed policy meeting, there was profit-taking on Treasury shorts, causing a slight easing in US yields. The US dollar retreated from intraday highs, with EUR/USD rebounding.

As the Fed meeting approaches, attention shifts to the 2024 ECB and its Watchers Conference. Debates center around inflation, monetary policy transmission, and geopolitical implications. UK inflation data triggered a brief GBP drop, complicating the picture before the Bank of England’s policy decision tomorrow.

Regarding the Fed, there’s a tilt toward a hawkish surprise. Inflation forecasts may be revised upward due to a resilient economy and labor market. While the December dot plot projected three rate cuts, there’s a growing case for fewer cuts and a delayed start, given supportive financial conditions and base effects boosting inflation. The meeting will also reveal if the median estimate of the neutral rate has shifted higher, impacting rate projections for 2025 and 2026. Quantitative tightening may slow based on recent Fed comments, sustaining momentum in US yields.

In other news, Treasury International Capital data for January showed a decline in overseas holdings of US Treasuries. Japanese holdings increased, while Chinese holdings decreased. The ECB plans to make internal wage trackers publicly available later this year, providing insight into wage negotiations and policy decisions.

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