During today's Asian trading, the US dollar consolidated against major currencies after yesterday's fall caused by partial profit-taking. Investors are being cautious ahead of the publication of important US data that may affect the timing of the Fed's monetary policy easing.
The US Dollar Currency Index (DXY), which tracks the dynamics of the dollar against six currencies (euro, swiss franc, yen, canadian dollar, pound sterling and swedish krona) rose by 0.01% to 103.24. Yesterday, the index fell by 0.37%. Today, market participants will focus on preliminary data on US GDP for the fourth quarter, and tomorrow the core personal consumption expenditure (PCE) price index, the Fed's preferred inflation indicator, will be published. Although experts no longer predict a recession on the horizon, they believe that real GDP growth will slow down in the coming quarters. GDP is expected to grow by 2% in the 4th quarter after an increase of 4.9% in the 3rd quarter. Overall, the U.S. economy has remained remarkably resilient in the face of the Fed's cumulative 525 basis point rate hike. Ultimately, real GDP is expected to grow by an average of 2.4% per year during 2023. In terms of monetary policy outlook, the Fed is expected to leave interest rates unchanged at its January meeting next week, but Chairman Powell's comments will be scrutinized to assess whether the Central bank is ready to start cutting interest rates. According to the CME FedWatch Tool, markets see a 42.4% probability of a 25 basis point rate cut at the Fed meeting in March and a 85.2% probability of a rate cut in May. In 2024, futures traders now expect five rate cuts of 25 bps, although two weeks ago they expected six cuts.
The euro was trading steadily against the US dollar, while investors are preparing for the ECB meeting, the results of which will be announced at 13:15 GMT. Economists expect the ECB to keep the deposit rate at 4.00%, but its assessment of the economy and potential hints at the timing of monetary policy easing will arouse more significant interest. In their recent comments, ECB policymakers have been somewhat wary of endorsing expectations of aggressive monetary easing. For example, ECB President Lagarde has stated that the central bank is likely to cut interest rates by the summer or during the summer, while some of the ECB's most hawkish policymakers have suggested an initial rate cut in the summer or later. Although experts expect that weak economic growth in the eurozone and weakening inflation may lead to a rate cut as early as April, it is unlikely that today's ECB policy statement will approve such a path. Most likely, the ECB will repeat that it "believes that key interest rates are at levels that, if maintained for a sufficiently long period, will make a significant contribution to returning inflation to target level”.