Topic: Foreign Exchange

Another hot US inflation report has seen market pricing back in line with the FOMC’s own rate projections — looking for three US rate cuts in 2024. However, the pullback in expectations has been orderly, keeping global sharemarkets buoyant.

Global investors have become comfortable pricing in the turn of the global monetary policy cycle to a more accommodative stance. October last year saw interest rate cuts outstrip hikes for the first time since the end of 2020 in what has retrospectively become the starting point of a new regime.

Investors are convinced that monetary policy easing is coming this year, just not as early as the consensus had been expecting going into 2024.

In a quieter week for global data, purchasing manager indexes (PMIs) were the main releases. The Fed and ECB minutes signalled rate cuts were coming but no time soon. The US dollar is on track to suffer its worst week of 2024, but the Japanese yen remains the clear loser.

After Fed chair Jerome Powell pushed back on expectations earlier this month, this week’s hotter than expected US inflation report was the final nail in the coffin. The USD index hit new three-month highs with the greenback’s best performance versus the low-yielding currencies like the Swiss franc and Japanese yen.