The Federal Reserve's Final 2024 Decision: Impacts on Markets and the Dollar
The global financial community is focused on the United States as the Federal Reserve convenes for its final interest rate decision of the year. Recent signals from policymakers and market expectations suggest a clear outcome: the Fed is set to conclude 2024 with a third rate cut, bringing the total policy easing to approximately 100 basis points.
Looking ahead, the U.S. dollar’s trajectory in 2025 will be influenced by a combination of Federal Reserve actions, geopolitical developments, and the unpredictability of Trump-era politics. This volatile mix could lead to significant challenges for economic forecasts and market stability.
Euro Slides Amid ECB Rate Cut and French Political Turmoil
The euro weakened following the European Central Bank's decision to cut interest rates by 25 basis points and remove the “sufficiently restrictive” phrasing from its policy statement last week. Markets are now fully pricing in five quarter-point rate cuts for 2025, with a potential sixth under discussion.
Adding to the unease, Moody's Ratings unexpectedly downgraded France’s sovereign debt after far-right leader Marine Le Pen ousted the government. The downgrade reflects concerns over diminished prospects for addressing the fiscal deficit crisis, leaving the credit agency little choice but to revise its outlook on Europe’s second-largest economy.
Central Banks in Focus: BoE and BoJ Set the Stage for Year-End
As the Federal Reserve takes centre stage, other major central banks are preparing for pivotal decisions before the year's close. The Bank of England (BoE) and the Bank of Japan (BoJ) are expected to hold interest rates steady this week, but their messaging will be critical. A dovish tone from the BoE, following softer UK economic data, poses a downside risk to the pound, which has already declined over 1% against the USD and EUR since last week’s highs.
The UK faces a significant week for economic data, with flash PMIs released today, labour market data on Tuesday, and inflation figures on Wednesday—all leading up to the BoE’s rate decision on Thursday.
