As we approach the Christmas break, markets are gradually quieting down, and liquidity begins to thin. With little new information expected this week, let’s take a moment to recap the key events from last week’s central bank decisions and consider their implications for 2024.
Central Bank Round-Up: A Hawkish BoE, Dovish Fed, and ECB’s Inflation Concerns
Over a busy 18-hour period, the Bank of England (BoE), Federal Reserve, and European Central Bank (ECB) made significant decisions on interest rates.
Of the three banks, the BoE was the most aggressive in its stance. Its decision led to the GBP/USD reaching levels not seen since August, while the GBPEUR ended the week higher than where it started, reflecting the positive sentiment surrounding the BoE’s decision.
The Federal Reserve underwent a significant shift in its monetary policy, moving from a hawkish to a dovish position. This resulted in a 2% decline in the US Dollar index, as reported by Bloomberg.
While the ECB reduced its inflation forecast, it decided to keep rates steady at 4%. However, Barclays predicts a 0.25% rate cut from the ECB in April 2024, followed by a consistent decline at every meeting until January 2025. If this trajectory is followed, Eurozone interest rates will drop to 2.25%.
This divergence in central bank predictions raises the question: could it lead to a lower EUR/USD in 2024?
Looking ahead, there are significant data releases scheduled that are expected to influence market sentiment in the week to come.
The UK Consumer Price Index (CPI) will be closely watched on Wednesday, providing insights into inflation trends. On Friday, UK Retail Sales and Final GDP will be released, shedding light on the health of the British economy.
Eurozone consumer confidence, scheduled for Wednesday, is expected to be a pivotal driver for the single currency. Attention will also be focused on consumer confidence, Final GDP, and Personal Consumption Expenditure (PCE) data in the US.
As we navigate the year-end market dynamics, these insights and data points will play a crucial role in shaping the direction of major currencies. Stay tuned for potential market shifts and opportunities in the final weeks of 2023.