It's Beginning To Look A Lot Like Rate Cuts

Hello and welcome back! Last week’s mixed views on rate cuts from Central Bank heads and members were a bit like a household’s shopping during Christmas; indecisive at best, deciding whether they have enough food and drinks in the trolley. It was clear that some members were more revealing than others, as markets continue to price in cuts for the coming new year of 2024.

However, it was the contradictions from the likes of US Fed Jerome Powell stating “cuts had been discussed” versus Fed member Williams “the bank wasn’t really talking about rate cuts” that kept the market on its toes or perhaps it was merely the signs of Christmas festivities starting early for some at the Central Bank.

Despite the mixed reveals from the FED, ECB, and BoE, markets have priced all to cut rates significantly next year. The ECB is poised to be the first and the Bank of England last. The consensus expects three to five rate cuts on average from each central bank, anywhere between 80 and 150 basis points in total, all of which will be heavily weighted to data performance throughout the year. Although the 2% inflation target levels seem still far away, there have been some sizable improvements throughout this year to warrant the optimism that 2025 could achieve these levels.

Of course, like your Christmas presents, it is not always a given or what you would expect, so we will have to wait to see how these forecasts unfold.

This week marks the last full working week for most until the New Year and, as a result, will be the last one for key data, as the markets look for any final signs to support their initial forecasts for 2024. Sterling hopes to continue its fine form for the month as it looks to bounce back and hold above 1.2700, whilst GBP/EUR looks to break its stubborn Embeziner Scrooge behaviour and drive through to 1.1700 for the first time since September this year. Although this week is US data heavy, that does not mean we cannot see a Christmas miracle from data such as CPI or UK retail sales to help spur GBP on.

I wish you a Merry Christmas and a Happy New Year!

Current Rate & Technical Levels

Relevant Economic Events

What we are reading

Check out some of the articles the team has been reading this week:

• Reuters - Exclusive: ECB governors see no dovish pivot before March, cut before June. (Read now)
• The Guardian - UK retailers face weak demand and a barrage of increased costs. (Read now)
• Reuters - Festive food and fizz top Europeans' Christmas shopping list. (Read now)
• Bloomberg - Weaker UK Retail Data Put Risk of Recession Back on Table. (Read now)

Thank you for reading! We'll be back next week with another edition. This edition of Birchstone: The Weekly View was written by Portfolio Manager Jamie Lewis .