Global FX Market Summary: USD, Geopolitical Tensions, ECB : 25 September ,2024

US Dollar weakening amid expectations of further Fed rate cuts. Global economic uncertainty and risk aversion are also contributing factors.

1. US Dollar Weakness and Rate Cut Expectations

• Market Pricing: The market is increasingly confident that the Federal Reserve (Fed) will continue its aggressive monetary easing policy. This is reflected in the pricing of interest rate futures, which now show a high probability of another 50-basis point (bps) rate cut in November.
• Economic Data: Weak economic data, such as the disappointing US Consumer Confidence Index and manufacturing activity data, has reinforced expectations for further Fed easing. These data points suggest that the US economy may be slowing down, prompting the Fed to take more aggressive measures to stimulate growth.
• Risk Sentiment: The prevalent risk-on environment, where investors are favoring riskier assets, is also contributing to the decline of the safe-haven USD. As investors become more optimistic about global economic prospects, they are less likely to hold onto the USD as a safe haven.

2. Global Economic Uncertainty and Risk Sentiment

• Geopolitical Tensions: Ongoing geopolitical tensions, such as the conflict in Ukraine and the escalating tensions in the Middle East, are creating uncertainty and risk aversion among investors. This can lead to a flight to safety, where investors seek to hold more liquid and less risky assets.
• Economic Slowdown: Concerns about a global economic slowdown, particularly in China, are also contributing to market uncertainty. A weaker global economy can reduce demand for riskier assets and increase demand for safe-haven currencies like the USD.
• Market Volatility: The heightened uncertainty has led to increased market volatility. This can make it difficult for investors to make informed decisions and may prompt them to reduce their exposure to riskier assets.
• Safe-Haven Demand: Amid the rising uncertainty, investors are turning to gold as a safe-haven asset. Gold is often seen as a store of value and a hedge against inflation, making it attractive in times of economic turmoil. The increased demand for gold has pushed its price to new highs.

3. Diverging Central Bank Policies

• ECB Hawkish Stance: The European Central Bank (ECB) has maintained a hawkish stance, indicating that it is likely to raise interest rates further to combat inflation. This contrasts with the Fed’s easing policy.
• Interest Rate Differential: The diverging central bank policies are widening the interest rate differential between the Eurozone and the US. This makes the euro more attractive to investors seeking higher returns.
• Economic Outlook: The ECB’s hawkish stance suggests that it has a more optimistic outlook for the Eurozone economy compared to the Fed’s more cautious outlook for the US economy.

Top Economic Events for This Week

1. SNB Interest Rate Decision, Monetary Policy Assessment, and Press Conference (09/26/2024):

1. • Impact: This is the most significant event for the Swiss Franc, as the Swiss National Bank’s decision on interest rates will influence the currency’s value.
   • Currency: CHF

2. US GDP Data (09/26/2024):

1. • Impact: The US GDP report will provide insights into the health of the US economy and could influence the Federal Reserve’s future monetary policy decisions.
   • Currency: USD

3. ECB Interest Rate Decision and Press Conference (09/27/2024):

1. • Impact: The European Central Bank’s decision on interest rates and the accompanying press conference will be closely watched by investors.
   • Currency: EUR

4. BoE Monetary Policy Report Hearings (09/26/2024):

1. • Impact: These hearings will provide insights into the Bank of England’s thinking behind its monetary policy decisions.
   • Currency: GBP

5. Fed Chair Powell Speech (09/26/2024):

1. • Impact: The Fed Chair’s comments on the US economy and monetary policy will be closely watched by investors.
   • Currency: USD

6. Japanese CPI Data (09/26/2024):

1. • Impact: Inflation data in Japan could influence the Bank of Japan’s monetary policy decisions.
   • Currency: JPY

7. ECB Monetary Policy Report (09/26/2024):

1. • Impact: The ECB’s assessment of the Eurozone economy will provide insights into its future monetary policy path.
   • Currency: EUR

8. ZEW Survey (09/25/2024):

1. • Impact: This survey of German economic sentiment can provide insights into the health of the European economy.
   • Currency: EUR

9. UK Retail Sales (09/26/2024):

1. • Impact: UK retail sales data can provide insights into consumer spending and the health of the UK economy.
   • Currency: GBP

10. US Durable Goods Orders (09/26/2024):

• Impact: This data can provide insights into business investment in the US economy.
• Currency: USD

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