We are pleased to bring you the latest edition of the series produced by our colleagues in RBC Capital Markets, hosted by George Davis, CMT, the award winning Chief Technical Analyst for Fixed Income and Currency Strategy.
In this installment George discusses the ‘pivot’ by the FOMC in December, with the Fed declaring that policy is now restrictive enough to bring inflation back towards their 2% target. This sets up a very important macroeconomic theme for 2024 with the market now looking at both the timing of the first rate cut and how many cuts are to be expected.
George then looks at current market pricing versus RBC expectations. The market expects a 50% chance of a rate cut at the March FOMC meeting and for rates to move from 5.5% to below 4% by the end of 2024. RBC expects the first cut around June with rates ending the year at 4.25%. As the USD tends to track the Fed Funds, with expectations for rate cuts looming, this should limit the topside for the USD.
USD sellers should keep this in mind as it will be more challenging to reach the highs seen in 2022/2023 between 1.3900 and 1.3975. Thus, going forward, George sees a lower expected trading range between 1.3100 to 1.3600 forcing USD sellers to adopt a more proactive strategy in their hedging requirements.