The U.S. dollar is poised for its most significant weekly decline in five months, driven by the Federal Reserve’s potential shift towards rate cuts, contrasting with the firmer stance of European central banks.
This divergence has fueled gains for the euro and the pound, while futures markets now reflect a 75% likelihood of a U.S. rate cut by March. Despite a rally in risk assets, concerns linger over the U.S. economy’s slowdown and persistent inflation, which could prompt a return of inflation if the Fed eases too quickly.
Meanwhile, the ECB and BoE maintain their focus on combating inflation, with investors still anticipating rate cuts next year. The yen has also strengthened, marking its longest streak of gains against the dollar since mid-2020.
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