News, insights and analysis from the global FX markets
This is your monthly FX market round-up with the latest news, insights and analysis.
GBP
In what has been a welcome relief for foreign currency buyers in the UK, the pound has rallied back against the euro and dollar through the tail end of November and into the start of December. Lifting as much as 2% against the single currency and a staggering 5.3% against the greenback in the last 30 days, it’s given some much needed breathing space in the run-up to Christmas.
Interest rate predictions heading into the final round of policy meetings for the year continue to dominate the headlines in the currency world, with the uptick in the pound mainly being attributed to the currency on the other side of the price however.
Rumours circulating that both The Fed and European Central Bank will look to reduce interest rates before the next Bank of England meeting is allowing the sterling to reverse previous losses. Inflation still remains a hot topic, with European, American and British readings all dropping towards the target 2%. It could be a case of who blinks first in slashing interest rates. The date to highlight in the calendar for the final BoE meeting is Thursday 14th December, where the Monetary Policy Committee sit down for the final time before February 2024.
Heading into the year-end also brings about the annual Santa rally, which could give the pound another boost heading into the festive period – potentially bringing the 1.30 level into sight against the dollar.
USD
With no surprise, the November FOMC rate decision was to hold still.
Worse than expected employment conditions mean the US economy could be at a crucial turning point which the Fed will watch closely. The latest CPI figures also showed that prices are cooling down faster than anticipated.
The market believes that the Fed has ended its year-long hiking cycle. Furthermore, we’re now looking at as many as four cuts in 2024 – meaning we could be seeing rates at close to 4% by the end of 2024.
Could that be bad news for the USD looking forward? Not necessarily. At least, not against the EUR. We’re seeing inflation falling just as fast in Europe and the European economies aren’t looking prosperous to say the least.
EUR
In November, global stock and bond prices rallied, with the 10-year US Treasury rate dropping below 4.20% from its recent peak of 5.00%. Despite the sharp decline in the dollar, the euro failed to follow suit against most major currencies, reflecting concerns about a potential eurozone recession and disinflationary pressures.
The eurozone, mirroring the global disinflationary trend, experienced a sharper-than-expected fall in both headline and core inflation indicators in the November flash report. With core inflation solidly below 4%, it’s evident that the European Central Bank’s hiking cycle is concluded. The European economy’s underperformance, coupled with concerning economic indicators from China, suggests a lack of imminent global demand recovery.
Given the pessimistic growth outlook and the possibility of a euro area recession by year-end, expectations lean towards eurozone rate cuts before the US. Markets are eyeing a potential first rate reduction in March 2024. This anticipation could lead to a partial retracement in the euro in the coming weeks.
CNH
CNH had its best month appreciating more than 2% against the USD, back to a level last seen in mid-June. Several key factors contributed to this bull run for the CNH:
- Chinese and US officials met during the third week of the month. According to historical patterns, the yuan always tend to rally soon after such meetings and this time was no different
- During that same week, the PBOC announced a 600 billion liquidity programme
- Chinese retail sales and industrial production data came out better than expected
- In a financial institution symposium held on the 17th of November the PBOC called on the banking system to provide support for the economy
It’s worth noting that as year-end approaches, Chinese exporters will be withdrawing more funds back to mainland China which will continue to provide support for the yuan over the coming months.
THB
The baht is rebounding from its weak performance earlier this year, reaching a three-month peak of 34.67 against the US dollar. Anticipated to maintain its strength in the final month of 2023 due to seasonal trends, the baht typically experiences increased demand from the tourism and export sectors during this period, leading to currency appreciation.
In comparison with other regional currencies, the baht has exhibited a milder weakening against the dollar at 2.3% this year. It ranks third in terms of volatility at 8.9%, trailing behind the yen at 9.65% and the won at 9.59%. Notably, the Thai currency reached a 10-month high of 32.57 against the dollar on January 23 but subsequently declined to an 11-month low of 37.24 against the greenback on October 4.
PHP
According to data from the central bank, the peso demonstrated strength in November, averaging P55.81 against the US dollar. This marks the lowest average since May when it traded at P55.73 to the greenback.
The robust performance of the peso might have contributed to a slowdown in the country’s inflation rate, potentially reaching at least four percent in November, which is at the upper limit of the government’s target, as suggested by the Bangko Sentral ng Pilipinas (BSP).
B of A Securities (BofAS) predicts an appreciation trajectory for the Philippine peso, forecasting it to move from an expected rate of 55.8 against the US dollar at the end of this year to 55.1 by the conclusion of next year. Furthermore, they anticipate a further strengthening to 53.1 by the end of 2025.
Disclaimer: This newsletter is to provide insight on the market and is not be to replied upon to be financial advice
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