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Over 2023 currencies traded within a narrow band relative to previous years, so what lies ahead for 2024? Last year’s stability was due to broadly similar tactics by the central banks of hiking rates to keep a lid on inflation. It is likely this alignment of approach will continue in 2024 with rate cuts priced in across each zone. But 2024 hold two key general elections in UK and USA, coupled with unrest in the Middle East, continuing conflict in Ukraine and thus it is likely volatility will be present this year.
It is noticeable the movement in the last month of US$ dollar weakening against € and £, which have stayed more or less aligned with each other. Whilst providing an opportunity for import prices of US$ based commodities it has the opposite impact on export prices. We are seeing this reflected in origin pricing levels, particularly in China. Here the situation is exacerbated by the weak Chinese economy causing concern for exports. As a consequence, we are having to secure contracts in local currency in the forward positions to achieve the best pricing.
Generally, markets have started to turn on more or less all items now. Additional freight rates are on the up, fuelled in particular by the current situation in Israel/Gaza. We have seen rates from China increase 100% this week alone. Obviously, oil is also firm adding surcharges on top of rates. Buying interest is also returning for 2024 now, as we at last see the delayed positions of consumers starting to be used up.
Sterling has weakened with the pausing of interest rate rises, and perhaps waits for some indication from the conservative party conference on the UK approach to investment & growth which will be heralded by the announcement re HS2. Otherwise, US dollar strength is impacting. UK inflation is improving and likely to continue, although whether the Governments targets will be met is still open to doubt.
The last few months have been all about interest rate rises to attempt to control the increase in inflation globally. These actions are likely to pause for a few months with attention switching to the various published data. So far these are tending to show a weaker situation in both the EU and UK compared to the US.
It seems like both inflation and interest rates are likely to have peaked in the USA, EU and UK now with inflation starting to fall. In the UK there is some confidence it will return to the Governments target of halving it within 2023. Markets are looking firmer generally despite new crops being on the horizon. For a variety of reasons from different areas we are off the bottom generally.
Falling inflation rates in both the EU & USA have indicated that perhaps further interest rate rises in the USA maybe slowed, whilst the EU is more likely to add further increases in the coming weeks. Overall, we are seeing the US dollar weakness at present against both Sterling and the Euro. With Sterling particularly strong against both currencies, partly as a response to the latest interest rate increase.
Last minute agreement over the USA debt ceiling prevents turmoil in global markets. Whilst never really expected not to happen it introduces uncertainty into the markets which is never good. Poor UK news on inflation tends to point to at least one further interest rate rise when the Bank of England meets. The Euro is at its weakest since the beginning of 2023, not helped by Germany being officially in recession due to a drop of in global demand.
Major issues surround the US Dollar currently with two over riding concerns. Firstly, are we in another banking crisis or are we not? Secondly will the US increase their debt limit for the 74th time to permit the Government to increase borrowings to pay personnel amongst other issues. One assumes yes to this point. However, together they put the US$ on the back foot and as a consequence we see the € and £ appreciating.