FX Talk - an Ebury podcast Ebury FX Talk

2024 looks set to go down in the history books as one of the most significant years in global politics in modern times, with almost half of the world’s population to take to the polls in some capacity. A historic rematch between current US President Joe Biden and former President Donald Trump looks highly likely when Americans take to the polls in November. As things stand, markets are almost entirely in the dark as to who will come out on top, and it is also similarly unclear as to which party will control the two houses that make up Congress.

The UK general election also looks set to take place later in the year. While the Labour Party appears highly likely to secure enough seats for a comfortable majority, the reaction in sterling to a change from the status quo is not necessarily set in stone. We discuss the possible economic, political and currency ramifications of these two votes, while also giving our thoughts ahead of the European Parliament elections, set to be held in June.

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The FX market has been sparked back into life in the past fortnight. A bout of strong data out of the US economy, notably the March inflation and nonfarm payrolls reports, has led markets to push back their timetable for Federal Reserve interest rate cuts. Heightened tensions in the Middle East following Iran’s missile attack on Israel has also triggered safe-haven flows into the dollar, which has jumped to its strongest position against its major peers since November.

But, when do we see the Fed easing policy this year, if at all? And what could an escalation in the Middle East conflict mean for the global economy, financial markets and currencies? Listen to this week’s episode to find out our thoughts!

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March was an extraordinarily busy month in the foreign exchange market, with a host of major central bank announcements creating an interesting trading environment. The Bank of Japan and Swiss National Bank both surprised investors, with the former raising interest rates for the first time since 2007, while the latter cut its main rate one meeting ahead of expectations.

The dollar has rallied against most currencies globally, despite the Fed indicating to markets that it sees three US rate cuts in 2024. Meanwhile, the Bank of England delivered a ‘dovish hold’, hinting that lower UK rates could be on the way in the not too distant future. But when could the MPC deliver its first interest rate cut?

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The big talking point in the FX market in the past couple of weeks has been the sell-off in the US dollar, which has lost ground against almost every currency globally. FOMC chair Powell has hinted that a first US rate cut may be close, and markets are now eyeing the bank’s June meeting as the start date for easing. US macroeconomic data, meanwhile, has been rather mixed, with a weak nonfarm payrolls report offset by hotter-than-expected inflation data. 

The coming week looks set to be a highly eventful one, with several major central banks announcing their latest policy decisions. Could either the Federal Reserve or Bank of England hint at lower rates ahead? And will the Bank of Japan deliver its first rate hike since 2007? 

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In this week’s episode, our analysts discuss the latest business activity PMI numbers out of the G3 economies, which seem to be pointing to a convergence in economic performance between the US and its major peers. Matt, Enrique and Roman also give their thoughts on what to expect from next week’s European Central Bank meeting. While the economy in the common bloc has ground to a near standstill, communications from Governing Council members have been hawkish, and a change in rates in March seems highly unlikely.

Lastly, we discuss our view on the Chilean peso - one of the worst performing currencies in the world so far in 2024. Has the sell-off in the peso gone too far? Or is there room for an additional depreciation in the currency?

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The UK economy crashed into a technical recession in the second half of 2023, after Britain’s GDP contracted for the second straight quarter in Q4. While this was no big surprise to investors, the magnitude of the downturn was more severe than anticipated. But, what impact did the news have on the pound? And how could the UK’s disappointing growth performance influence Bank of England monetary policy?

Elsewhere, Japan’s economy also fell into recession, adding further misery to the yen. The dollar, meanwhile, remains the best performing major currency in the world, as a hotter-than-expected US inflation report suggested that the Federal Reserve could wait until at least its June policy meeting before it begins lowering interest rates.

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