2023-12-17 21:24:59
Published on: Sunday, December 17, 2023 – 11:24 PM | Last updated: Sunday, December 17, 2023 – 11:29 PM
Economic research and study have expanded in recent years, as economic changes have had a significant impact on the lives of individuals and peoples, sometimes exceeding seemingly more important effects such as wars. Perhaps this is important because the economy is an essential factor in all global variables, whether they are health, such as the pandemic, or geopolitical, such as the war in Ukraine.
The impact of economic changes and shifts in the monetary policy of major banks is not limited to central banks and the price of currencies, as this extends the impact on the lives of individuals directly or indirectly. Especially with the lives of ordinary individuals being exposed to the effects of monetary policy despite their will, because their countries are affected by those policies, which will be detailed later. While this change may allow ordinary individuals to benefit from these changes, the unprecedented expansion in the field of trading, especially in the currency trading market or what is known as the Forex market, has allowed new categories to enter global markets, with the aim of benefiting from the financial markets. If we know that one of the most important causes of these fluctuations is the monetary policy decisions announced by central banks, which can be relied upon Forex analysis To achieve distinctive results in this field. But it must be noted that benefiting from these fluctuations is not easy, as it is a market designated for central banks, investment funds, and hedge funds, and risk management is one of the basic rules for trading in those markets.
The end of the monetary tightening cycle in the United States of America
The world is awaiting the course of monetary policy in the United States of America, as reports continue that include future expectations for that policy, especially with economic data showing the success of the monetary policy followed by the Federal Reserve Bank in controlling inflation rates, reducing demand, and relative control over the strong labor market.
The US dollar declined strongly last November, while recovering some of its previous losses during the current month, as it maintained a strong performance, especially after the employment data in the US non-agricultural sector, which is issued during the first Friday of every calendar month. The US jobs report showed increases greater than expected. These surprising numbers contributed to the rise of the dollar, as well as the increase in government bond yields issued by the United States government.
The non-farm payrolls numbers were an inconsistent tone with the series of positive data released since the beginning of last October, as numbers showed the economic slowdown in the United States of America. Which prompted market analysts to recalibrate their previous expectations, which were highly optimistic about federal interest rate cuts early next year. Most of these estimates centered around the start of the shift in monetary policy by the end of the first quarter of 2024. As a reflection of these adjustments that preceded them, Warnings from major financial institutions such as JPMorgan, which warned against excessive expectations of interest cuts.
Expectations of interest cuts in the United States of America during 2024
In the broader context, the November jobs report, although seen as a small setback for the Fed, is likely to support the CPI data, which came in as expected, falling 0.1 percent as November inflation reached 3.1 percent. Fully captures the current range of interest rate cut expectations priced into the US interest rate market.
The breakdown revealed that nine out of nineteen members of the Federal Open Market Committee expected interest rates to end next year at 4.875 percent or lower. Given the recent improvement in US inflation, there is a good chance that the median forecast for the end of next year will be lowered, suggesting cuts of 50 basis points next year or even 75 basis points.
The impact of changing the course of monetary policy in the United States
In the end, it is important to know the course of monetary policy in the United States of America, which has had an impact on the global economy. This was clearly evident with the beginning of monetary policy tightening at the beginning of the second quarter of 2022, which caused a wave of withdrawal of foreign reserves from most central banks and the bond market in emerging markets. For example, the Egyptian government suffered a significant decline in foreign exchange reserves over the course of 2022 following the exit of approximately $20 billion from the Egyptian market following the start of interest hikes in the United States.
In the same context, the importance of determining the course of monetary policy is of particular importance to some central banks. For example, central banks in the Arab Gulf countries follow the monetary policy approved by the Federal Reserve Bank, in their effort to normalize monetary policy amid those countries’ keenness to stabilize the value of their currency against the dollar.
This policy also has a strong impact on financial assets such as gold, cryptocurrencies, and major currencies. Gold recorded strong declines as investors preferred the dollar, which brings interest, while investors viewed gold as a store of value, which does not achieve any interest. The same applies to cryptocurrencies, which recorded low levels over several months as traders moved towards the dollar. While we witnessed the opposite effect with the succession of expectations about the end of the monetary tightening cycle, which contributed, along with other factors, in pushing gold prices to record their highest historical levels during December 2023, after the price of gold exceeded the levels of $2,140 per ounce – coinciding with a strong decline in the dollar.
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