Fundamental analysis of FOREX on December 7, 2023
Investors expect a sharp rate cut from Central Banks, although such a decision requires a good reason. Isn't that why regulators have been taking unpopular measures for many months, tightening financial conditions in order to return everything to normal overnight? The signal for a reversal of the monetary policy course should be a significant deterioration in the economic situation. And indeed, there are such prerequisites. But the markets are once again ahead of events, forgetting about the statements of the monetary authorities to keep rates at high values for a long period of time.
The Financial Times conducted a survey among financial experts, and two-thirds of respondents believe that the Fed will begin to reduce the cost of borrowing no earlier than the third quarter of next year, with 30 out of 40 experts predicting that the rate cut in 2024 will not exceed 50 basis points.
At least five acts of monetary expansion are expected in the futures market next year, at 25 basis points each. The initial month of the Fed's exchange rate change is March. Yesterday's U.S. labor market report from ADP added confidence to supporters of this scenario.
But the situation in Europe is much worse than in the United States. Moreover, most analysts believe that the ECB went too far with the tightening of financial conditions and finished off the European economy, accustomed to low rates. If inflation continues to slow at the same pace, Christine Lagarde will be the first among the central banks of developed countries to announce a reversal of monetary policy.
The futures market expects the ECB to cut rates by 150 basis points in 2024, starting in March. But even here, experts predict a decrease in the cost of borrowing by only 100 bps.
EUR/USD does not have time to work out the change in market forecasts. Back in November, the pair updated the highs for 3.5 months, and now, having lost the support of stock indexes, it is also soon losing its won positions.
The November US labor market report will help clarify the market situation. Strong statistics will support sellers, weak data will support buyers