The return of Hungary to interest rate cuts was major news in Europe. However, global markets were more concerned with the continued retreat from the dollar. This movement was triggered by weaker economic indicators. In the current situation, gold is one of the beneficiaries of the dollar’s decline.
Hungarians are cutting rates again
After Hungary’s central bank decided in August to keep interest rates unchanged, the future of the cycle became questionable. But yesterday, the main rate was reduced from 6.75% to 6.5%. It’s notable that while inflation in Hungary jumped from 3.7% to 4.1% in July – halting further cuts – we saw a slowdown in price growth in August. Last month, the inflation rate was only about 3.4%. This is the lowest result since the onset of inflation in Europe. As a result, we can expect a return to rate cuts in Hungary. Just a year ago, the interest rate there was 13%. By the end of this year, it has a chance to fall below the Polish index, although it topped out at a “mere” 6.75%. Further drops are expected to lead to further depreciation of the forint.
Weaker data from the USA
Yesterday we had two significant readings from the USA. The Fed index from Richmond showed a weaker level. Markets were expecting an improvement to -17 points, instead, a drop to -21 points was reported. The survey measures production activity, and the result shows that respondents are becoming increasingly pessimistic. The second indicator concerns consumers, not businessmen. The Conference Board consumer confidence index – also showed much lower levels. As a result, the dollar gave back what it gained on Monday against the euro due to weaker economic indicators and then some. The dollar’s exchange rate against the złoty fell to the lowest level since September 2021.
The market is again pricing risk
Yesterday’s economic index data, to put it mildly, did not put Western economies in a good light. Markets are expecting both a drop in interest rates and a serious economic slowdown. When interest rates are lowered, capital typically flows to the stock market. The problem is that as a recession is looming, many analysts note that this may not be the best idea. As a result, a lot of capital is going to alternative markets. Gold is on the rise again, breaking yet another all-time record this year. Cryptocurrencies are also showing a very solid form. They have already made up a significant part of recent losses.
In today’s macroeconomic data calendar, pay attention to:
14:30 – Czech Republic – decision on interest rates,
16:00 – USA – new home sales.
Maciej Przygórzewski – Chief Analyst at InternetowyKantor.pl
Source: https://ceo.com.pl/wegry-wracaja-do-obnizek-stop-procentowych-slabszy-dolar-napedza-wzrost-zlota-i-kryptowalut-15511
