Below is this week’s market forecast from our trade desk at LTI.
The upcoming week is packed with major economic data releases and occasions that will affect how the FX market performs up to the end of the year. The current FOMC meeting and the release of the most recent US CPI report for November are the two most significant events for the USD (Wed). Following the release of the weaker-than-expected US CPI report for October, which showed that underlying inflation pressures are beginning to weaken, the USD has corrected substantially downward during the previous month. The assumption that the Fed is nearing the end of its cycle of rate hikes would be strengthened by a second straight worse CPI data, which would also support the USD’s decline. The Fed is anticipated to slow the rate of increases this week to 50 basis points. It is anticipated that the new dot plot will show rates reaching closer to 5.0% next year. Although a 25bps walk is more likely in February, we do not anticipate the Fed to follow the BoC and give a strong indication that the cycle of rate increases is about to stall or come to an end.
On Thursday, the BoE, ECB, Norges Bank, and SNB are all expected to present their most recent policy updates. We anticipate that the BoE, ECB, and SNB will all scale down their rate increases to 50bps. We anticipate another lower 25bps increase in the next week because the Norges Bank already scaled back the magnitude of rises at their most recent policy meeting. However, the Norges is the most likely to offer a stronger hint that their rate walk cycle is nearing an end, whilst the others should all give more cautious indications over how much further rates may continue to rise. The ECB is also anticipated to start detailing strategies for reducing its balance sheet starting in QT of the following year.
We hope you all have a safe week inside and out of the market.