Sun, May 19, 2024

EURUSD – Fed Expected to Maintain Three 2024 Rate Cuts Despite Elevated Inflation

The FED meeting of monetary policy settings scheduled upcoming week Wednesday, The rates mostly at 5.25%-5.50% only is widely expected. FED Balance sheet is tightening to $7.5 trillion after the rate hikes since 2023. Now Slowing of Tapering is expected in 2024 and 75bps rate cuts is expected in this year 2024. Then $6.75 trillion dollar will be shrinked after the rate cuts.The inflation reading is soared to 3.2% in February month shows FED to delay rate cuts in June month also from economists view.

EURUSD is moving in Ascending channel and market has reached higher low area of the channel

EURUSD is moving in Ascending channel and market has reached higher low area of the channel

Economists anticipate that despite recent inflationary upticks, Federal Reserve policymakers will likely maintain their projections for three interest-rate cuts in 2024 and four in 2025. The Federal Open Market Committee is expected to keep rates unchanged at 5.25% to 5.5% for the fifth consecutive meeting next week, with the first rate reduction anticipated in June. Most surveyed economists foresee Fed officials maintaining expectations for three or more rate cuts.

EURCHF – Swiss Franc Faces Downside Risks Amid Inflation Divergence from SNB Forecasts

The Swiss Franc is going to depreciate in the upcoming days due to inflation is lower in Swiss zone and with in SNB target of 0-2%. Latest inflation data for February month came at 1.2%, Producers and Imports prices declined to -2.0%, it is the tenth consecutive month decline in the import price history. SNB most probably rate cuts will be do in this week meeting is widely expected by economists side.

Swiss Franc Flat Amid Concerns of Diverging Inflation from SNB Forecasts

SNB monetary policy meeting min

The Swiss Franc (CHF) remained largely unchanged at the close of the trading week, with minimal fluctuations in its major pairs. However, the fundamental outlook for the CHF appears unfavorable as Swiss inflation continues to decline, deviating from official projections. This could prompt the Swiss National Bank (SNB) to consider easing policy, which typically exerts downward pressure on the currency by reducing foreign capital inflows.

Recent macroeconomic data reveals that Swiss Producer and Import Prices continued their deflationary trend in February, marking the tenth consecutive month of deflation at minus 2.0% (compared to negative 2.3% in January), according to the Federal Statistical Office.

Swiss Franc Vulnerable as Inflation Undercuts SNB Forecasts

The Swiss Franc faces further vulnerability as Swiss inflation appears poised to fall short of official forecasts. Headline inflation in Switzerland rose by 1.2% year-on-year in February, down from 1.3% in January, and increased by 0.6% month-on-month, up from 0.2% in January. These figures indicate that inflation is lagging behind the SNB’s projections, which anticipated a rise from the 1.4% registered in November, as stated in the SNB’s December policy statement.

EURCHF is moving in Ascending channel and market has reached higher low area of the channel

EURCHF is moving in Ascending channel and market has reached higher low area of the channel

The SNB implemented a rate hike of 0.25% in June 2023 to counter the threat of higher inflation. However, with inflation decreasing faster than expected, there’s a risk of interest rate cuts, which would negatively impact the Swiss Franc by reducing foreign capital inflows. Furthermore, inflation running well below the SNB’s 1.9% forecast for 2024 increases the likelihood of a policy change. The SNB’s next policy meeting is scheduled for March 21.

SNB Concerned About Overvalued Swiss Franc

SNB Chairman Thomas Jordan has voiced concerns about the Swiss Franc’s excessive strength, particularly its adverse effects on Swiss businesses, especially exporters. This concern is evident in data from Switzerland’s Foreign Exchange Reserves (CHFER), indicating a recovery in Forex reserves in 2024, suggesting that the SNB may be selling Swiss Francs to depreciate the exchange rate.

GBP: UK inflation expectations decline, relieving pressure on BoE

The Public inflation expectation in the next 12 months is 3.0% in February  survey and down from 3.3% in November month survey. Upcoming week inflation reading of February is expected to fell down as 3.6% from 4.0% in January month. So The Bank of England is expected to hold the rates in the nextweek meeting. BoE expected to fall the inflation rate to 2% projected but energy prices can drive the inflation reading to 3% this year is projected. The BoE rise the rates to 5.25% it is 16 year high reading. Public confidence on BoE reducing inflation reading increased to -5.0% from -21.1% according to latest survey on February month.

EURGBP is moving in box pattern and market has fallen from the resistance area of the pattern

EURGBP is moving in box pattern and market has fallen from the resistance area of the pattern

A recent Bank of England survey, reported by Reuters in London, indicates a decline in the British public’s expectations regarding inflation over the next year. The survey, conducted over the past three months, revealed that median inflation expectations for the next 12 months dropped to 3.0% in February, marking the lowest level since August 2021 and down from 3.3% in November. However, expectations for inflation over the following 12 months remained steady at 2.8%, while longer-term expectations decreased to 3.1% from 3.2%.

This decline in inflation expectations comes amidst a backdrop of elevated consumer price inflation, which stood at 4.0% in both January and December, doubling the Bank of England’s target. Preliminary figures from a Reuters poll of economists suggest that consumer price inflation may have eased to 3.6% in February, with official data due on Wednesday.

While public inflation expectations do not directly forecast price growth, Bank of England economists view them as indicators of potential future wage pressures and consumer willingness to accept higher prices. The Bank of England forecasts a return to its 2% inflation target for the first time in three years by the second quarter of this year. However, it anticipates inflation rising back towards 3% later in the year as the impact of lower energy prices diminishes.

Despite these inflation dynamics, annual wage growth remains elevated at around 6%, roughly double its rate before the COVID-19 pandemic when inflation was more subdued. A recent survey conducted between February 2 and February 20, involving over 4,000 respondents, showed that net satisfaction with the Bank of England’s control of inflation improved to minus 5% from minus 14% in November. This contrasts with a record low satisfaction rate of minus 21% observed in August 2023.

Bank of England policy meeting

Although the Bank of England signaled a review of its interest rates, which currently stand at a 16-year high of 5.25%, it suggested that a rate cut was unlikely in the immediate future due to persistently high wage growth and services price inflation. Economists surveyed by Reuters expect the Bank of England to maintain its rates when it announces its March rate decision on Thursday. However, they anticipate the possibility of a rate cut no later than the third quarter of 2024, with a 40% chance of a move in the second quarter.

The latest survey findings revealed that 26% of the public expect a cut in interest rates over the coming year, up from 16% in November, while 36% anticipate further rate hikes.

AUD: Aussie bank raises interest rates before RBA meeting

RBA Monetary policy meeting is scheduled Tuesday in upcoming week, it is expectd to hold the rates at 4.35%. U Bank running by NAB increased Variable home loan rates between 0.05 to 0.10 points ahead of RBA meeting next week. Inflation in Australia is come down to 3.4% in the last 12 months to January. It is much lowered than the high of 8.4% in December 2022. RBA expected  goal of 2-3% rate in 2025-2026 mid range.

EURAUD is moving in Ascending channel and market has rebounded from the higher low area of the channel

EURAUD is moving in Ascending channel and market has rebounded from the higher low area of the channel

The Reserve Bank (RBA) is anticipated to maintain its current interest rates during its upcoming meeting next week. However, this hasn’t deterred one Australian bank from adjusting its home loan rates.

UBank, a subsidiary of NAB, has announced an increase in its variable home loan interest rates by 0.05 to 0.10 percentage points, effective for new customers. Consequently, UBank’s lowest advertised variable rate now stands at 6.14 per cent, positioning it higher than at least 25 other lenders offering rates below the 6 per cent threshold.

Simultaneously, UBank has reduced select 1-, 2-, 3-, and 5-year fixed rates by up to 0.65 percentage points, with its lowest 3-year fixed rate now at 5.99 per cent.

Sally Tindall, the research director at RateCity, noted that UBank is not alone in its rate adjustments. While the Big Four banks have remained relatively quiet, other lenders have been actively adjusting their home loan offerings, particularly fixed rates.

According to data from RateCity, 29 lenders have decreased at least one fixed rate, while four have increased fixed rates over the past month. Additionally, 13 lenders have lowered at least one variable rate, while 19 have raised variable rates during the same period.

Australian Currency AUD in a Piggy bank

Tindall suggested that the increase in variable rates may stem from competitive pressures on lenders’ interest margins. She observed a shift in lenders’ strategies, with fewer lenders now offering variable rates below 6 per cent.

Regarding the RBA’s upcoming meeting, expectations are for the central bank to maintain its current interest rates. Despite inflation holding steady at 3.4 per cent in the 12 months to January, the RBA anticipates inflation to fall within its target range of 2-3 per cent by 2025, reaching the midpoint by 2026.

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