Market calms amid quiet data week and lower rate hike expectations

Market calms amid quiet data week and lower rate hike expectations

Last week, positive core inflation figures from the Eurozone and US, more moderate central bank comments, and indications of a milder US job market scenario led to a noticeable reduction in market interest rate projections. In light of this, stock markets in both the US and Europe surged, with Euro Stoxx 50 and S&P 500 climbing by 1.1% and 2.5%, respectively.

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Current market sentiment has toned down expectations of an interest rate increase by the ECB in its upcoming meeting. In other developments, future contract values suggest a decrease in investors' anticipation that the Fed will hike rates beyond their present standing. In the same vein, the peak interest rate expected for the UK this cycle has been revised downwards. All in all, by the close of next year, the forecasted official interest rates are believed to be 10-20bps lower than previously estimated last Monday.

In terms of currency fluctuations, the declining interest rates did introduce some instability. Over the past week, the dollar exhibited a marginally stronger performance, with EUR/USD dipping below $1.08 and USD/JPY reaching a new year-to-date peak at ￥147.3. Nonetheless, the dollar faced challenges in retaining its entire gains as the week advanced.

As trading gets underway this morning, EUR/USD stands just below the $1.08 mark, EUR/GBP hovers around the 85-86p midpoint, and GBP/USD is leaning towards the lower end of the $1.26-1.27 bracket.

Looking ahead to the coming week, although the data calendar seems relatively uneventful, comments from key central bank figures, including ECB Chief Lagarde and BoE Chief Bailey, could influence the market.