CURRENCIES
The U.S. dollar index advanced to new highs for the move yesterday in light of the hawkish commentary from the Federal Open Market Committee statement.
The Bank of England left its benchmark bank rate steady at 4.75% during its the policy meeting today, which was in line with market expectations.
British manufacturers reported the biggest decline in output since the COVID-19 pandemic in late 2024, and they have become even more downbeat about the start of 2025.
The Confederation of British Industry said a gauge of output over the three months to December in its monthly industrial trends survey, published on Wednesday, fell to -25, which is its lowest level since August 2020. This is down from -12 in the three months to November.
Manufacturers’ expectations for output over the coming three months declined to -31, which is the weakest since May 2020, from +9.
The Bank of Japan maintained its key short-term interest rate at around 25 basis points during its final meeting of 2024, keeping it at the highest level since 2008 and meeting the market consensus.
The fundamentals and technicals remain supportive to the U.S. dollar, and higher prices are likely. The fundamentals and technicals remain bearish for the euro currency and the British pound, and lower prices are likely.
STOCK INDEX FUTURES
Stock index futures closed sharply lower yesterday after the Federal Reserve indicated it plans fewer interest rate reductions next year than previously anticipated. The Fed now projects only two interest rate cuts in 2025, which is down from the four cuts it had forecast in September.
There is some recovery today.
The third quarter gross domestic product on an annualized basis increased 3.1% when a gain of 2.8% was expected. Personal consumption expenditures on an annualized rate increased 3.7% when up 3.5% was forecast.
Jobless claims in the week ended December 14 were 220,000 when 230,000 were anticipated.
The December Philadelphia Federal Reserve manufacturing index was -16.4 when 2.5 was predicted.
The 9:00 central time November existing home sales report is expected to be 4.05 million, and the 9:00 November leading indicators report is anticipated to be down 0.1%.
INTEREST RATES
Futures traded sharply lower yesterday due to the Federal Open Market Committee’s “hawkish” interest rate cut. Pressure on futures came after the Federal Reserve delivered a widely anticipated 25 basis point rate cut on Wednesday but signaled fewer rate reductions in 2025 than previously expected.
The Fed also lowered its forecast for the unemployment rate and raised expectations for core inflation and economic growth, sending U.S. Treasury yields higher. The yield on the 10-year U.S. Treasury note advanced above 4.5% on Thursday, reaching its highest level in seven months.
There is a 91% probability that the Federal Open Market Committee will keep its fed funds rate unchanged at 4.25% – 4.50% at its January 29, 2025 policy meeting, and there is a 9% chance of a 25 basis point reduction.
The U.S. economy is likely to perform well, which may cause the FOMC will be slower to add accommodation in 2025 than the consensus view.
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