The US economy remains resilient, but inflation concerns remain. The eurozone is showing signs of recovery, but rising inflation limits the ECB's room to cut interest rates.
US economic resilience and Fed policy
The U.S. economy continues to show resilience, as evidenced by 2.8% annualized growth in the third quarter. Although this number is slightly lower than expected, it still represents solid economic performance. This robust growth, combined with persistent inflationary pressures, has led to a cautious approach by the Federal Reserve. The central bank will continue to monitor inflation, particularly as the core PCE price index remains above its 2% target. As a result, market participants are now expecting a 25 basis point rate cut in November, and expectations for another rate cut in December have subsided.
Eurozone economy and ECB policy
The euro zone economy is showing signs of recovery, with growth of 0.4% in the third quarter, beating expectations. This growth was particularly pronounced in Germany, where the economy returned to growth in the third quarter due to increased domestic demand. But Germany's higher-than-expected inflation has raised concerns about persistent price pressures, potentially limiting the European Central Bank's room for further rate cuts. This development could complicate the ECB's policy-making efforts to balance economic growth with inflation control.
Global currency market trends
A combination of factors including strong economic data, expectations that the Federal Reserve will be less aggressive, and geopolitical uncertainty helped push the dollar higher. The euro also strengthened against the US dollar due to improved economic indicators in the euro area and higher inflation in Germany. Additionally, sterling recovered following the UK's autumn budget announcement, which included tax increases and increased public spending. The Canadian dollar has remained relatively stable against the US dollar, affected by differing economic indicators in both countries. As global economic conditions continue to evolve, currency markets remain volatile and fluctuate based on a variety of factors, including central bank policies, geopolitical events, and investor sentiment.
This week's main economic events:
- BoC President Macklem’s speech (October 30, 2024 20:15:00): Speeches by central bank governors can have a significant impact on market sentiment and exchange rates. Macklem's speech could provide insight into the Bank of Canada's future monetary policy stance, which could have implications for the Canadian dollar.
- Bank of Japan Interest Rate Decision, Monetary Policy Statement, Outlook Report (2024/10/31 03:00:00): The Bank of Japan's monetary policy decisions, such as interest rate adjustments and yield curve control, can have a significant impact on the yen.
- Bank of Japan press conference (2024/10/31 06:30:00): A press conference after the Bank of Japan's monetary policy meeting could provide further clarity on the Bank's outlook and possible policy changes affecting the yen.
- German CPI data (October 31, 2024 10:00:00): Inflation data is important for understanding price pressures and the potential for future interest rate adjustments by the European Central Bank. German CPI data could have a big impact on the euro.
- US Core PCE Price Index (2024/10/31 12:30:00): The Core PCE Price Index is the Federal Reserve's recommended inflation measure. This data release may influence the market's expectations for future Fed rate hikes or cuts, which could impact the US dollar.
- US non-agricultural employment numbers (2024/10/31 12:30:00): Nonfarm payrolls data provides insight into the health of the US labor market and can have a significant impact on the US dollar.
- US ISM Manufacturing PMI (2024/10/31 14:00:00): The index provides a snapshot of the health of U.S. manufacturing and can impact the U.S. dollar.
- NBS Manufacturing PMI and Non-Manufacturing PMI (2024/10/31 01:30:00): These indexes provide insight into the health of China's manufacturing and services industries, respectively, and can have implications for the Chinese yuan and global markets.
- Australian retail sales (10/31/2024 00:30:00): Retail sales data provides insight into Australian consumer spending and economic activity and can impact the Australian dollar.
- New Zealand Building Permit (10/31/2024 21:45:00): Building permit data provides insight into New Zealand's future construction activity and economic growth, which can impact NZD.
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