22.01.24 - 26.01.24
Results of the previous week
US indices are showing positive sentiment. The S&P 500 and Nasdaq set new all-time highs. They're supported by strong quarterly reports from the major companies included in them. In addition, the preliminary data on the US GDP growth rate, which significantly exceeded forecasts (3.3% against the forecast of 2.3%), was also positive.
On the foreign exchange market, the dollar showed a mixed trend. It was supported by increased expectations that the US Federal Reserve isn't going to hurry to cut interest rates. These expectations were only boosted by the US economy's strong growth data. A stable economy does allow rates to be kept high for a longer period of time.
Brent oil rose to the $82.06 mark. There are two factors supporting the energy resource. The first is the US economy's faster growth rate, indicating that the world's largest fuel consumer remains resilient. The second is the introduction of additional monetary stimulus by China (the largest oil importer) to support economic growth.
Key events of the current week
Germany's GDP growth rate
The German economy is the biggest in the entire euro area. Therefore, its growth rate significantly moves the dynamics of the similar European indicator. It's worth noting that last year was quite difficult for the German economy. It repeatedly showed a decline as a result of high energy prices and changes in supply chains. Global analysts expect another drop in Q4. Two consecutive quarters of decline is already a technical recession. Economic weakness is a negative factor for the euro. In such a scenario, EUR/USD may decline to 1.0750.
The US Federal Reserve's rates decision
The US regulator has hinted at possible monetary policy softening in late Q1 2024. But the latest inflation data was contradictory, which led to a change in rhetoric coming from Fed representatives. Right now, they aren't rushing to cut the key interest rate unless there are sufficient grounds for doing so. As such, the upcoming meeting may shed some light on the regulator's intentions. Even a slight tightening of rhetoric is positive for the US currency but negative for dollar-denominated assets. In such a scenario, gold (XAU/USD) may pull back to the 2008.50 level.
The Bank of England's monetary policy decision
The Bank of England is still facing a rather difficult task. Amid rather high inflation, which slightly accelerated to 4%, according to the latest data, it needs to keep the rate high for a longer period of time. At the same time, signs of economic cooldown require the regulator to act to ease monetary policy. Global analysts expect that the rate will be kept unchanged at the current meeting. The Bank of England's willingness to keep the rate high for a long time supports the pound. In such a scenario, we could see the cable get back up to somewhere around 1,2830.