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Interest Rate Cuts on Hold: Central Banks Remain Cautious

INVESTINGInterest Rate Cuts on Hold: Central Banks Remain Cautious

Towards the end of last year, it seemed that there would be a series of interest rate cuts beginning in the first quarter of 2024. However, this timeline is now shifting to the end of the second quarter in major economies.

What about the interest rates in the USA?

The highly anticipated interest rate cuts in the US seem to be receding. This is becoming increasingly evident when looking at the futures contracts for the interest rate. The January meeting, which is just two days away, should not realistically change anything. The only exception could be a change in the message coming from the Federal Reserve (Fed). However, for weeks, the members have been repeating like a mantra that they do not want any cuts at the moment, suggesting this is a settled strategy. This is the reason for the stronger dollar in recent days. If this signal is confirmed, it is plausible to expect attempts for further dollar strengthening against the euro on Wednesday.

European Central Bank (ECB) cools expectations

Not only across the ocean are the prospects of interest rate cuts receding. It seems that the European Central Bank is also not in a hurry. Recent statements by the President of the ECB, Christine Lagarde, only confirm this tendency. The first cuts are not expected until June. As in the US, we are seeing another signal strengthening the currency. This, amongst other reasons, is why the last few days on the main currency pair – despite strong signals from both sides of the ocean – haven’t had a clear resolution.

Weaker data from the UK

The UK seems to be experiencing another slump. After retail sales increased for the first time since April 2022, following a long sequence of declines, we’re back to levels below zero. Analysts were expecting a symbolic 1% annual increase. However, the reading brought an immediate decrease of 2.4%. This data translated into a markdown for the pound sterling. On the other hand, it is important to note that the British currency has been making up for losses against the euro recently. Looking at last year, the current levels are exceptionally high, which means there is room for a downward movement.

Today’s economic calendar has no significant data.

Maciej Przygórzewski – chief analyst at and

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