The U.S. Dollar is trading in more favorable ranges as it plays a bit of recovery mode following a week of losses that brought it down to its weakest level overall since August.
Overview
The heavily packed central bank week showed that central banks are mostly satisfied with how they have battled inflation and seem to be entering a period in which they want to gauge economic indicators without intervention.
On one hand, the Federal Reserve decided to stay put for longer and projected that some interest rate cuts may be coming, but only if deemed necessary. Meanwhile, European and English counterparts exuded a message of “higher-for-longer,” meaning borrowing costs will not be reduced and a pivot towards dovishness is unlikely with inflationary pressures still too high for comfort. In general, the tightening cycle is over and now risk markets may flourish a bit.
Economic data proved that disinflation continues and that productivity is normalizing, if not improving in some areas. Oil prices had their first weekly uptick in two months, a sign that demand may start going up as we go into the start of 2024 suggesting better economic times. For now, we seem very much done with the speculation for 2023 and will look to have an outlook with optimism for the next.
What to Watch Today…
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EUR ⇓
The Euro fell by over half a percent this morning with the Buck looking to recuperate some ground after its major collapse mid-week. As the Fed made it clear that hikes may not be coming back anytime soon, investors jumped to all other assets in the hope that the lack of pressure from borrowing costs will help global momentum. Much of what has held the dollar up has been based on the Europeans absorbing all the negative effects of conflicts and trade realignment. That anxiety and fear is subsiding after months and even years of adjustment to new dynamics. Now, the belief is that 2024 will bring better times and thus impact Buck negatively while allowing for other currencies to flourish. Evidence of expansion will be needed, but prospects for the Euro look promising if the statistics demonstrate a transition towards prosperity, not austerity.
MXN ⇓
The Peso improved overall for the week but is closing with some weakening after Banxico also made its policy announcement yesterday. Per officials, Mexico’s economy does not need to be aided by cuts to interest rates anytime soon. Expectations remain that the central bank will pivot, along with the Fed, but only after the second half of the year begins. We feel elections and other factors may play into softening MXN, but for now, it remains the second-best performing currency of the year after the Colombian Peso. Sterling and Euro rank 7th and 8th respectively.
