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Final update before Christmas. Last week, markets were once again at the mercy of the Dollar. Expectations regarding future rate cuts on the Greenback continue to be the dominant factor pushing currency pairs back and forth. Commodities and stocks were equally vulnerable to the whims of the Federal Reserve. So what did the Fed board members have to say? Essentially, that the unexpected resilience in the US economy and labour market, coupled with decreasing inflationary pressures, mean that the need for rapid rate cuts is simply not there. The same cannot be said for other economies around the world, hence the strength observed in the USD.
In a well-telegraphed move, the Bank of England elected to maintain rates on the Pound at 4.75% last Thursday, however the decision to do so was less unanimous than economists had predicted. A small surprise, but one that caused Cable to test $1.25 for the second time in as many months. The Euro is facing its own battle, dipping below $1.04 once again and now perched precariously above the danger zone. The Yen also has its own problems to contend with, USDJPY remaining stubbornly high all year and creeping back up to the 160 level last week despite the Bank of Japan’s best efforts.
A surging Dollar has put a lot of pressure on gold, which now sits more than $150 off its record high set in late October. Bitcoin has shouldered the pressure much more valiantly over the past couple of months, although it too suffered a harsh reality check last Wednesday following the Fed meeting, which forced it back down to five figures.
The economic calendar is looking especially barren this week, as well it might. Time to focus on matters closer to home. Merry Christmas.
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