A series of elections are set to leave their mark on 2024. The US presidential election on 5 November will obviously be the high point of the year. We seem to be heading for a remake of the 2020 election, but this is not still certain. On 8 February, the Supreme court is due to examine if US states can disqualify Donald Trump from the presidential election. Anything is possible. This is a high-risk event for all financial assets, especially the dollar. If Trump succeeds in avoiding a disqualification, his legal headaches will not necessarily be over. Quite the contrary. A year of high volatility is just beginning.
High: 1.1000 Low: 1.0794 Change: -1.19%
Operators have long positions in the US dollar, which serves as a hedge against geopolitical risk and reflects expectations that the US economy will continue to outperform the eurozone in 2024. Even assuming zero growth in all four quarters of 2024 (which is impossible), the growth carryover from 2023 means that US growth will be at least 1.3% this year. The same cannot be said for the eurozone. As a result, we expect the EUR/USD to fall back to the area around 1.07 in the short term.
High: 0.8684 Low: 0.8513 Change: -1.56%
A rate cut will have to wait. At its meeting on 1 February, the Bank of England (BoE) left its base rate unchanged. This was expected. But details of how members of the monetary policy committee voted are interesting. Only one member voted for a rate cut. Like its counterparts in other developed countries, the BoE is sure to take its time before launching rate cuts and will only act when sure that inflation is under control. There is no certainty that this will fundamentally change the state of play for the EUR/GBP pair, which has tended to move within a range for several years.
High: 1.2787 Low: 1.2609 Change: -0.80%
Most of January, the cross has evolved in a range. Long-term, we still believe the USD will outperform the GBP (stronger economy, less cuts than expected by the market and inflow of capital going to the US instead of Europe). We are now seeing consolidation in the GBPUSD pair, with the price approaching the key area around 1.27-1.28. Beware a breakout in either direction could be potentially quite explosive after such a period of consolidation.
High: 7.8728 Low: 7.7685 Change: -1.01%
The Chinese central bank has announced a 50 basis point cut to banks’ reserve ratio requirement, taking effect on 5 February. This move is set to inject close to 1,000 billion yuan into the economy. Part of this will be used to support the property sector. The rest will serve to boost liquidity just ahead of the Chinese New Year beginning on 10 February. This holiday period usually coincides with a decline in liquidity and an appreciation of the yuan (strong demand for cash).
High: 0.9475 Low: 0.9343 Change: +0.38%
The EUR/CHF cross should continue to move within the 0.93-0.96 range in the short term. Monetary policy is not a differentiating factor in the near term. The Swiss National Bank (SNB) has sharply curtailed its current market interventions, which aimed in the past to contain the franc’s appreciation.
High: 1.4730 Low: 1.4499 Change: -0.20%
At its January meeting, the BoC implicitly indicated that rate increases are over. However, the future looks challenging: inflation in services peaked in mid-2023 but inflation remains high in some sectors of the economy and, to make matters worse, a hard landing scenario (recession) appears increasingly likely. We are maintaining our long position on the EUR/CAD pair.
High: 1.6696 Low: 1.6128 Change: +2.50%
The money market puts the odds on the RBA starting to cut rates next May at one in two. Subsequently, two additional cuts are possible. Beware that this is a somewhat optimistic scenario in our view. We continue to be bullish on the EUR/AUD pair.
High: 162.81 Low: 155.07 Change: +2.01%
The Bank of Japan (BoJ) met for the first time this year without giving operators the slightest hint about whether it is considering a possible rate hike. The key policy rate is unchanged at -0.1%, while the yield-curve control mechanism has been left in place. Inflation has exceeded the BoJ’s target for almost the past year and it is not expected to return to 2% this year. This suggests that a rate hike is possible in theory. But the timing is in doubt. In the near term, uncertainty about the future trajectory of Japanese monetary policy continues to harm the yen.
High: 390.43 Low: 382.80 Change: +0.441%
In the short-term, the cross will likely continue evolving between the range of 380,00-400,00. Later this year, when there will be more visibility on the ECB easing calendar, rate differential may play a bigger role in the evolution of the EUR/HUF. For now, only the NBH is easing. With the disinflation process well in place (especially due to the drop of food and fuel prices), we think the central bank will maintain the current 75 bp pace of easing. We expect a total of 400 bp cut this year – this is aligned with the consensus. Contrary to other analysts, we don’t think the current blockade of the red sea constitutes a real threat to the inflation outlook. It should not be overlooked by the NBH in our view. The re-routing of vessels via Cape of Good Hope only results in an additional cost of 400 euros per container. This is not enough to jeopardize the disinflation story. However, beware inflation might slightly increase in the second half of 2024 as positive base effects will run out. This should push the NBH to avoid larger cuts of 100bp, for instance.
High: 361.40 Low: 352.80 Change: +1.61%
We are out of consensus. The money market sees the Fed easing and a softer U.S. economy as consistent with a softer dollar. But what is happening in the FX market does not fit this narrative. We have seen in recent weeks investors to unwind Nov/Dec’s pricing of early rate cuts across the world, reversing the fall in the dollar. We believe the consensus is too aggressive on rate cuts and that the Fed will probably cut rates less and later than expected. The market is pricing a first cut in May (85 % of probability) with a total rate cut of 160bp this year. What if the Fed only starts cutting in the second half of this year and by a much lower scope (50-75 bp)? This is our baseline. We think the dollar will remain strong all this year as the U.S. economy continues to outperform the European economy and rate cuts will be lower than forecasted. This means there is more way to go up for the USD/HUF. The cross is currently hovering around 354.00. We see a potential jump to 365 in the coming months.
| DATE | CURRENCY | EVENT |
| 05/02 | CNH | Cut to banks’ reserve requirement ratio takes effect in China (credit stimulus measure) |
| 06/02 | AUD | Central bank meeting |
| 08/02 | USD | The US Supreme Court is due to examine if US states can disqualify Donald Trump from the presidential election because of his attempts nullify the results of elections in 2020 and his role in the insurrection on 6 January |
| 09/02 | CNH |
Start of Chinese New Year festivities
|
| 13/02 | USD |
US inflation (consumer prices) |
| 27/02 | HUF |
Central bank meeting |