Topic: Weekly FX Report

The main overarching risk to central banks around the world and the current low-volatility regime lies in the ascent of commodity prices, the US dollar and inflation expectations so far in 2024.

Equities continue to record fresh all-time highs on the hope that the peak of the global tightening cycle is behind us. The US dollar, however, has been supported by central banks other than the Federal Reserve preparing markets for incoming rate cuts this year.

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.