Topic: Weekly FX Report

The US Dollar Index paused last week, leading to a marginal weekly gain as yields retraced slightly. The rhetoric has changed within the Fed and markets are adjusting to this reality. Geopolitics remains front and center.

Macro and markets look a lot different now then they did two weeks ago, and it has once again been US economic data that investors can blame for causing this volatility.

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.