Z Forex
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Global Economic Outlook: Currency Shifts, Recession Risks, and Commodity Market Dynamics
The US dollar is losing ground as market players increase their bets that the Federal Reserve (Fed) has concluded its rate-hiking cycle and anticipates a rate cut in mid-2024. The upcoming US PMI data could provide some clues regarding the economic conditions in the US.
There is an increased risk of recession in the Eurozone as the economic downturn extends into the fourth quarter. Surveys in the private sector point to continued weakness among companies, which increases the possibility of a recession. This outlook is reflected in the PMI figures, which, although better than expected, remain in contraction territory. Market participants will be closely watching Germany's Q3 GDP, the IFO survey, and ECB President Christine Lagarde's speech on Friday.
UK PMI figures have surpassed expectations, moving out of the contraction zone. However, unexpected output growth in UK firms has reignited inflation concerns. November data indicates increased activity and stronger inflation pressures, signifying economic resilience but also potentially alarming the Bank of England (BoE). BoE Governor Andrew Bailey has remarked that it is too early to consider rate cuts, suggesting that borrowing costs may need to rise again if inflation turns out to be more tenacious than anticipated. The BoE's narrative of potentially higher rates for an extended period has supported the British Pound (GBP) against its competitors.
In Japan, both headline and core inflation rates have exceeded the Bank of Japan's (BoJ) 2% target for the 19th consecutive month. Additionally, there are expectations of another significant round of pay increases next year, which would support sustained and stable inflation. Consequently, this fuels speculation that the BoJ will likely end its negative interest rate policy in the early months of 2024.
Gold remained stable on Friday, poised for its second consecutive weekly gain, buoyed by a weakening US dollar. The market's growing belief that the Federal Reserve has finished raising interest rates, coupled with looming recession fears in Europe and the UK, could enhance gold's role as a haven in the near term.
OPEC+, a coalition of the world's key oil-exporting nations, has announced a virtual assembly for their forthcoming meeting on the 30th of November. The global oil market is on alert for pivotal decisions on production quotas. Concurrently, Saudi Arabia, a dominant player in the global oil market, intends to extend its reduction in oil production by one million barrels daily into the coming year. The alliance is contemplating additional cuts to combat the recent downtrend in oil prices. Should OPEC+ choose not to implement further reductions in output, it may exert a bearish influence on oil market valuations.