Home Daily Commentaries Expectations of US interest rate cuts slashed as economy proves “resilient”.

Expectations of US interest rate cuts slashed as economy proves “resilient”.

Conor Fleming
Written by
Conor Fleming

Conor Fleming

OFXpert

With 30 years of experience in the foreign exchange world, Conor spearheads initiatives to encourage businesses in Germany, Switzerland, and Austria to hedge their foreign currency risks with OFX.

| Tuesday 8 October, 2024

Daily Currency Update

The German economy is projected to contract by 0.2% in 2024, according to a report in the Sueddeutsche Zeitung. This marks a downward revision from the previous government estimate of 0.3% growth, reflecting a shift to an inflation-adjusted contraction​. This will be the second consecutive year of contraction for Europe's largest economy

The Pound dropped against both the Euro and the Dollar yesterday, driven by geopolitical risks and Central Bank monetary policy considerations. A cooling in Britain’s labor market in September is expected to ease pressure on the Bank of England, potentially paving the way for a second rate cut this year. In the short term, the Pound is likely to remain under pressure due to escalating Middle East tensions, which tend to benefit the "safe-haven" Dollar.

Meanwhile, the US Dollar hovered near a seven-week high on Monday as investors adjusted their positions after last week’s strong jobs report and increased geopolitical concerns. Rising Treasury yields, climbing back above 4%, have supported the Dollar, which posted a 2% gain last week—the largest in nearly two years.

Key Movers

Germany's industrial orders fell sharply in August, far exceeding expectations and highlighting ongoing weakness in the country's manufacturing sector. Despite this, the Euro has shown surprising resilience, given the steep decline in German factory orders. The silver lining may come from the European Central Bank (ECB), as markets now fully expect a rate cut later this month.

Last Thursday, Bank of England Governor Andrew Bailey put additional pressure on the Pound by signaling support for quicker rate cuts. Consequently, markets now anticipate two more 25-basis-point cuts at the final two meetings of this year. However, persistent inflation and a growing budget deficit create a challenging environment for the Monetary Policy Committee.

Meanwhile, just a week ago, markets were pricing in 75 basis points of rate cuts by the Federal Reserve by the end of the year. Today, expectations have shifted to just one 25-basis-point cut, leading to rising Treasury yields and a stronger Dollar. This week, multiple Fed Governors are set to speak, and investors will be watching closely for any insights on future policy direction.

Expected Ranges

  • GBP/USD: 1.3070 - 1.3125 ▼
  • GBP/EUR: 1.1890 - 1.1940 ▼
  • GBP/AUD: 1.9430 - 1.9490 ▼
  • EUR/USD: 1.0955 - 1.1020 ▼

Written by

Conor Fleming

OFXpert

With 30 years of experience in the foreign exchange world, Conor first embarked on his financial career journey as a trainee dealer in BNP Paribas in the early 90s. His professional journey also took him to New York, where he assumed the role of Head of Sales with an Irish bank for a few years. During his tenure at both banks, he was invited to several interviews on Irish television to discuss market turbulence, the factors driving volatility and insights into what could be expected as events unfolded.

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