Expectations for the Federal Reserve’s next rate cut has changed drastically in the last few months. Beginning in the end of 2023, we could see USD weakness as market expectations were that the Federal Reserve would be the first out of major central banks to lower their borrowing costs. We have since then seen a transition from the Federal Reserve itself, suggesting that their view is different to market consensus. This lead to uncertainty on when a first rate cut could happen and has been pushed back – meaning that it will likely happen later than the initial market expectation.
This has lead to USD strength, the best performing currency for 2024. The latest market expectation is that rate cut has fallen to its lowest levels since October. Keep in mind that this is not an official statement from the Federal Reserve.
The reason market has reacted like this and particular futures traders lowering their bets on reduced borrowing costs, comes down to that it would spike inflation. The US economy has shown strength and concerns that spending would increase at a rate – it would deteriorate Federal Reserve’s plan on lowering inflation levels. Another factor that can cause injection to higher inflation levels is oil – reaching a five month high. Oil has an impact on all industries and majority of household, causing producers to pass on the cost to the consumer.
GBP/EUR 1.1648 GBP/USD 1.2654 GBP/AED 4.6394
GBP/AUD 1.9133 GBP/CHF 1.1440 GBP/CAD 1.7170
GBP/NZD 2.0842 EUR/USD 1.0852 GBP/ZAR 23.307