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If you love central banks (who doesn’t?), this week is for you. This week is gearing up to be crucial for financial markets, with not one, not two, but four major central banks preparing to announce key interest rate decisions. The central bank lineup is as big as ever and will put investors’ confidence to the test.
The week kicks off with the much-anticipated announcement from the Federal Reserve on Wednesday. Market expectations are high, with widespread anticipation that the Fed will choose to maintain interest rates at the current target range of 5.25-5.50%. If confirmed, this decision would mark the third consecutive meeting where policymakers have opted for a steady stance. Federal Reserve Chair Jay Powell's subsequent comments will be closely scrutinized, providing insights into the central bank's outlook for 2024.
Since March 2022, under the leadership of Jerome Powell, the Federal Reserve has pursued an aggressive strategy of raising interest rates, totaling 11 increases to combat inflation. This hawkish stance has significantly influenced the U.S. dollar, helping it maintain strength. The DXY chart serves as proof.
The impact of these rate hikes is felt globally, as higher yields attract international investment seeking returns on bonds and interest-rate products. The outcome is a strengthened U.S. dollar exchange rate, further solidifying its position.
While economists are forecasting that the rate hikes of the last two years are now likely a thing of the past, Fed officials acknowledge the possibility of further rate hikes under certain conditions. In his recent statement, Powell emphasized that it's premature to declare victory over inflation or discuss potential rate cuts. Despite inflation running slightly above the Fed's 2% target, the chairman is adopting a wait-and-see approach, emphasizing the need for continued vigilance.
Following the Federal Reserve's announcement, attention shifts to Thursday, when the central banks of Europe, the UK, and Switzerland are expected to present their own interest rate decisions. Similar to the Fed, these institutions are anticipated to maintain their current rates, reflecting a cautious approach amid evolving economic conditions.
The week's events commenced with the immediate release of US inflation data, a crucial data point closely monitored by markets. This report, released ahead of the Federal Reserve's decision, indicates an expected price growth of 3.1% for November, slightly down from the previous month's 3.2%. The figures add an extra layer of significance to an already impactful week for global markets.
As the week unfolds, investors and market participants are on high alert, keenly observing the decisions of four major central banks and their subsequent implications. The outcomes will shape the immediate market landscape and provide valuable insights into the future direction of monetary policies in these key economic regions.
