RedFX Update: USD falling back - Update on the week ahead
The market is now convinced that the US will be cutting rates by mid-2024 and the USD has fallen on the back of that (markets are now pricing a cut as early as March24) . Market expectations are for the UK & Europe to follow suit. The exact timing of the ‘start of the rate cutting cycle’ will determine the fate of the world’s major currencies.
GBP: UK Inflation data has showed that recent rate hikes seem to have done a good job - with UK prices slowing to 4.6% in October from 6.7% in September.
GBP/USD is higher due the weak USD – trading around 1.2450. in contrast, GBP/EUR had a rough week last week and languishes near 1.1400. Manufacturing and Services data released on Thursday will be closely watched..
USA: In mid-October, EUR/USD was at 1.0550, but after the USD pullback it sits around 1.0925 this morning. This pullback came after both the producer and consumer price index came in lower-than-expected last week, suggesting that inflation is easing, and the Fed’s interest rate hikes are having the desired effect of cooling the economy.
The US Fed is due to meet once more in Dec and keep rates unchanged. This Tuesday’s release of the last meeting’s minutes may shed some light on the Fed’s thinking – the markets will be quiet for Thanksgiving at the end of this week.
EUR: We know that the ECB is now taking a neutral stance on rates, with good reason - Euro zone inflation was confirmed at 2.9%, down from 4.3% the previous month. EUR/USD trading around 1.0950 is mainly due to a weak USD rather than any positive sentiment around the single currency.
Poor data from Germany this morning won’t help - In its monthly economic report published on Monday, Germany’s central bank, the Bundesbank, said that the German economy is likely to shrink again this quarter while facing a touch recovery in the first quarter of 2024 – all eyes will be on Thursday’s data.
Main Events coming up:
Tuesday: AUD Central Bank minutes released / Canada Inflation / US Fed minutes from previous meeting
Wednesday: UK Monetary Policy Report hearing / Canada central bank speech
Thursday: EUR Manufacturing and Services data / UK Manufacturing and Services data / German Manufacturing and Services data / NZD retail Sales.
Friday: US Manufacturing and Servies data
