Important calendar events
The dollar edged lower on Monday, with the dollar index dropping to the 103.2 level. US treasury yields also declined, with the US 10-year bond yielding approximately 4.1%.
The Fed kept interest rates unchanged at its December meeting, within a target range of 5.25% to 5.50%. The Federal Reserve kept its policy settings unchanged at its latest meeting in December but showed signs of a dovish pivot.
Even though inflationary pressures remain high, markets expect a Fed pivot to a dovish stance this year. Market expectations of future rate cuts are one of the primary drivers of the dollar. Markets odds of a 25 bp rate cut in March ticked up to approximately 60% on Monday, putting pressure on the dollar.
Traders will be focusing on Fed members’ speeches in the next few weeks for hints into the Fed’s policy outlook. Fedspeak is likely to be hawkish in the weeks to come as the central bank may try to rein in market expectations of rate cuts.
Headline inflation rose by 3.4% year-on-year in December from a 3.1% print in November against the expectation of a 3.2% raise. Monthly CPI rose by 0.3% in December, exceeding expectations of a 0.2% print. Core CPI, which excludes food and energy, rose by 0.3%, in line with expectations. Inflation in the US remains sticky and may put pressure on the Fed to keep interest rates at high levels for longer.
Core PCE price index rose by only 0.1% in November from a 0.2% growth in October against a 0.2% growth expected, bringing the annual rate to 3.2% from 3.4%. This is the Federal Reserve’s preferred inflation gauge and November’s print indicates that price pressures in the US are easing.
US Final GDP data showed that the US economy expanded by 4.9% in the third quarter of 2023. The US economy continues to expand, although growth was more modest than anticipated in Q3. Low economic growth may induce the Federal Reserve to pivot to a less restrictive monetary policy. Final GDP Price Index for the first quarter of the year was also revised lower, with a final print of 3.3% versus 3.6%. This is an indicator of inflation, and a lower print indicates cooling price pressures in the US.
EUR/USD edged lower on Monday, dropping to the 1.088 level. If the EUR/USD pair declines, it may find support at 1.084, while resistance may be encountered near 1.100.
ECB policymakers voted to keep interest rates unchanged at 4.50% in December. Markets are starting to price in rate cuts this year, although ECB officials insist that discussions on a rate cut timeline have not started yet. ECB policymakers have also stressed the need to bring Euro area inflation down to the ECB’s 2% target by keeping interest rates at sufficiently restrictive levels for as long as necessary.
The ECB will announce its interest rate decision this week on the 25th and the central bank is expected to keep interest rates the same. The ECB conference after the conclusion of the meeting will attract traders’ attention looking for hints into the central bank’s future policy. The ECB is expected to pivot to a more dovish policy later this year but the time for that is still uncertain.
ECB interest rates are likely to stay at high levels for some time, as policymakers are concerned about persistent inflationary pressures in the Eurozone. ECB President Christine Lagarde has stated that the central bank is making progress in steering inflation back to its 2% target but has emphasized that further efforts are required.
Final EU CPI data for December showed that Eurozone inflation remains sticky, indicating that the ECB still has some ground to cover to ensure that inflation drops sustainably. EU Final CPI for December came at 2.9% year-on-year from 2.4% in November. Core Flash CPI for December dropped to 3.4% from a 3.6% print in November, which was in line with expectations.
The economic outlook of the Eurozone is deteriorating and may force the ECB to pivot to a more dovish policy. The Eurozone economy does not show signs of recovery and is on the brink of recession. Revised GDP for the Euro area showed that the Eurozone economy contracted by 0.1% in the third quarter of the year, which was in line with expectations. The Eurozone economy barely expanded in the second quarter by 0.1%, after contracting by 0.1% in Q1 of 2023. Year-on-year the EU economy registered stagnation with GDP flat at 0%. The Eurozone economy is struggling and cannot withstand much further tightening.
The Sterling gained strength against the dollar on Monday and GBP/USD rose to the 1.273 level. If the GBP/USD rate goes up, it may encounter resistance near 1.278, while support may be found near 1.260.
Headline inflation rose to 4.0% year-on-year in December from 3.9% in November, against expectations of a 3.8% print. This marked the first rise in consumer inflation in 10 months, increasing the odds the BOE will keep interest rates at high levels for longer. Annual Core CPI, which excludes food and energy, grew at the same pace of 5.1% in December as in November, beating the 4.9% forecast.
The British economy remains fragile, reinforcing the notion that the BOE has reached its peak interest rates. Monthly GDP rose more than expected in November, however, inspiring more optimism on the UK’s economic outlook. The British economy expanded by 0.3% in November against expectations of a 0.2% growth and 0.3% contraction in October. Final quarterly GDP data revealed that the British economy contracted by 0.1% in the third quarter of 2023, against expectations of stagnation. The British economy expanded by 0.3% in the first quarter of the year and 0.2% in the second quarter.
The BOE maintained its official rate at 5.25% at its latest policy meeting, which was in line with expectations. The central bank’s outlook remains hawkish, however, with three policy members voting to increase interest rates versus six members voting to maintain current rates.
BOE Governor Andrew Bailey has kept a hawkish stance, stressing that inflationary pressures in the UK remain high and that further tightening might be required to bring inflation down to the bank’s 2% target.
The BOE has likely reached its rate ceiling but will keep interest rates on hold for a long time to bring inflation down. Even though the current restrictive policy is hurting economic growth, the BOE has no choice but to continue its battle against inflation.
Market expectations of the BOE’s future direction reflect the need to keep interest rates in restrictive territory for longer. The BOE policy is starting to diverge from that of the FED, with market odds in favor of Fed rate cuts starting in March, but BOE rate cuts are not expected before May.
USD/JPY traded sideways on Monday, oscillating around the 148 level. If the USD/JPY pair declines, it may find support near 145.6. If the pair climbs, it may find resistance near 148.8.
The BOJ has been keeping interest rates at a negative level, putting pressure on the Yen. The BOJ kept its policy settings unchanged at its December meeting. The central bank kept its short rate target steady at -0.10% and its yield curve control unchanged.
BOJ Governor Kazuo Ueda has kept a dovish stance, indicating that a policy pivot is not on the cards yet. Ueda has stated that economic growth remains modest and that underlying inflation will gradually increase, but the BOJ requires sustainable, stable inflation before tightening its monetary policy.
The BOJ will announce its next monetary policy decision this week on the 23rd. The central bank is expected to leave all policy levers untouched and market participants will focus more on the BOJ’s forward guidance.
The BOJ will also release the first Quarterly Outlook for Economic Activity and Prices Report for 2024 on Tuesday. This report will provide important insight into Japan’s economic outlook and the BOJ’s future policy direction.
The Fed has signaled a dovish pivot, relieving some of the pressure on the Yen, which has been weakened by the BOJ’s dovish policy. The BOJ has so far maintained its dovish bias, putting more pressure on the Yen as other major central banks, and especially the Fed, have raised interest rates to high levels.
Inflationary pressures are not sufficiently high in Japan to justify a shift to a more hawkish policy yet. PPI remained flat year-on-year in December, exceeding expectations, however, of a 0.3% decline. National Core CPI data showed that Japanese inflation cooled further in December with headline inflation at 2.3% year-on-year from a 2.5% print in November. Tokyo Core CPI also dropped slightly to 2.1% in December from 2.3% in November.
Final GDP data for the third quarter of the year showed that Japan's economy contracted by 0.5% in the third quarter against earlier estimates of a 0.5% contraction. The Japanese economy expanded by 1.2% in the second quarter of 2023, showing that the country’s economy is shrinking and is on the brink of recession. Final GDP Price Index showed a 5.3% annual expansion in Q2, versus 3.5% the previous quarter. This is a measure of inflation, which shows that inflationary pressures are rising in Japan, increasing the odds of a hawkish shift in the BOJ’s policy.
The content provided in this material and/or any other material that this content is referred to, whether it comes from a third party or not, is for information purposes only and shall not be considered as a recommendation and/or investment advice and/or investment research and/or suggestions for performing any actions with financial products or instruments, or to participate in any particular trading strategy and cannot guarantee any profits. Past performance does not constitute a reliable indicator of future results. TopFX does not represent that the material provided here is accurate, current, or complete and therefore shouldn't be relied upon as such. This material does not take into account the reader's financial situation or investment objectives. We advise any readers of this content to seek their own advice. Without the approval of TopFX, no reproduction or redistribution of the information provided herein is permitted.
Written by:
Myrsini Giannouli
kehadiran industri sebagai Penyedia Likuiditas
dan eksekusi yang dapat diandalkan
dana klien
dukungan pelanggan
Situs web yang sekarang Anda lihat dioperasikan oleh TopFX Global Ltd, entitas yang diatur oleh Otoritas Jasa Keuangan (FSA) Seychelles dengan Lisensi Dealer Sekuritas No SD037 yang tidak didirikan di Uni Eropa atau diatur oleh Otoritas Kompeten Nasional UE.
Jika Anda ingin melanjutkan, harap konfirmasikan bahwa Anda memahami dan menerima risiko yang terkait dengan perdagangan dengan entitas non-UE (karena risiko-risiko ini dijelaskan dalam Own Formulir Pengakuan Inisiatif dan bahwa keputusan Anda akan menjadi inisiatif eksklusif Anda sendiri dan bahwa tidak ada permintaan yang dibuat oleh TopFX Global Ltd atau entitas lain dalam Grup.
Jangan tampilkan pesan ini lagi
Situs web TopFX menggunakan cookie untuk mengoptimalkan pengalaman pengguna.
Cookie ini termasuk dalam kategori berikut: cookie penting, fungsional, dan pemasaran. Cookie pemasaran juga dapat mencakup cookie pihak ketiga.
Anda dapat menyesuaikan pilihan cookie mana yang ingin Anda terima.
Cookie ini diperlukan agar situs web dapat berfungsi dengan baik dan tidak dapat dinonaktifkan.
Cookie fungsional memungkinkan situs web mengingat preferensi pengguna dan pilihan yang Anda buat di situs web seperti nama pengguna, wilayah, dan bahasa.
Cookie ini digunakan untuk melacak pengunjung di seluruh situs web kami dan menampilkan iklan yang lebih relevan kepada Anda. Cookie pemasaran juga mencakup cookie pihak ketiga dari mitra. Untuk informasi lebih lanjut terkait perlindungan & pengumpulan data, silakan lihat Kebijakan Privasi dan Pengungkapan Cookie kami.
