The U.S. Dollar is trading in mostly familiar ranges as markets digest mixed perspectives on what is to come in terms of monetary policy as we enter a new year.
Overview
After a long streak of interest-rate hikes deemed a necessity to fight record inflation, it looks like most traders are pricing in loose policy measures to come, believing that the Fed will pivot and perhaps start cutting rates. Some economists are also suggesting that 2024 will see a reduction of about 100 basis points from where we are now, 5.5%.
The next Fed meeting will take place on December 13th, but it is already clear there is disagreement among members on how to approach the upcoming year. On one hand, Fed Governor Christopher Waller said he was satisfied with how inflation has been tamed and there may not be a need to maintain a hawkish mentality. On the other, Fed Governor Michelle Bowman explained that reaching the Fed’s 2.0% inflation target is a goal that should be reached even if more tightening and increments have to be used.
In terms of data points, the second revision of Q3 Gross Domestic Product came out a bit higher than expected at 5.2% vs. 5.0% on the first read, further showing the economy has expanded instead of dwindling. Q3 Personal Consumption came in lower than expected, while Core Personal Consumption Expenditures climbed a bit more than estimated, 3.6% vs. 3.5%. As markets take in the figures, they will watch for more data detailing consumption and prices tomorrow and a speech from Fed Chairman Jerome Powell on Friday.
What to Watch Today…
- U.S. PCE Deflator tomorrow
Euro-zone CPI tomorrow- Monex USA Online is always open
EUR ⇓
The Euro remains around its best levels since August although it hit the brakes a bit after debate amongst Fed members seemed to be brewing. Monetary policy aside, this morning’s release of November Economic Confidence for the Eurozone came in better than anticipated. We will get a take on inflation in the form of the Consumer Price Index tomorrow. With budgets being passed in Italy, expect more pressure on Germany and other member nations to promote green expenditures into legislation.
GBP ⇓
The Pound has stayed mostly put as markets wait to react to Bank of England’s Andrew Bailey who will speak later today. His comments before were of hawkish nature and traders want to see if there are any changes to his thinking. Predictions for 2024 are all over the place with plenty having been wrong about recession in 2023. Bailey and other officials will be questioned going forward on how they view U.K. dynamics and if any growth can be foreseen.