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📌 Forecast 2024: what happens to the dollar?
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A year ago, Bloomberg experts were confident that the dollar would lose the war on inflation, and the US would have to push its economy into recession. In fact, it turned out that the US GDP is soaring, unemployment remains near half-century lows, and inflation is approaching the optimal target. Is the Fed’s policy that effective?
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The Fed always considered high prices unfounded and refused this opinion only when the CPI approached 8-9%. The current Fed’s cycle of monetary restraint was the most aggressive in decades, but it was only at the 2024 finish that it became clear that high inflation was really temporary. Its causes are related to the fundamental shocks that the Fed cannot influence.
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Supply shortages due to COVID-19 and the war in Ukraine are losing focus, consumer prices are returning to the target. In such an environment, keeping rates high is harmful to the economy. The Fed caused euphoria in the market when it used its December meeting to say that the rate hike was over, and Powell’s comments were perceived as a signal of the regulator’s willingness to soften.
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Since then, the dollar has fallen by almost 3% – global risk appetite is increasing, and the probability that the Fed will cut rates in March is estimated by traders to be 80%.
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Tomorrow the NFP for December will add its data to last year’s statistics and it will be possible to start a full-fledged analysis.
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Investors continue to sell the dollar, although the chances of a recession, a soft landing, and a new take-off are roughly the same. We also expect that 2024 will be the year when the greenback will gradually weaken, but it will be a gradual, nonlinear motion, with a nervous reaction to force majeure.
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As always, we'll see!
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Profits to y’all!