Starting today, central banks are gathering before year-end, and the overall sentiment is expected to be accommodative. The ECB is anticipated to cut rates by 25 basis points, with over an 80% probability, while a 50 basis point cut cannot be excluded given the challenging economic situation. The euro is currently trading at 1.05 and will likely dip closer to parity after the cut and Christine Lagarde’s press conference.
Next week, all eyes will be on the Fed. Following yesterday’s CPI report of 2.7%, the market is pricing in more than a 90% probability for a 25 basis point cut. However, a contrarian view suggests that inflation may be on an upward trend, with November figures above 2%—the Fed’s target—and higher than those from October and September. Additionally, the real economy remains strong, and unemployment is solid. This raises questions about whether the Fed might be tempted to pause rate cuts sooner than January.
Following the Fed’s meeting, the BoJ will also be in focus. As members indicated yesterday that they don’t see significant costs associated with waiting before raising rates, the Japanese yen spiked from 151 to 153 back to 152.1 this morning as it strengthen on CPI because rate there most likely will be but an hawkish tone too signaling a pause from January.
In the wake of the Fed’s expected cut, the cryptocurrency market has rallied, with Bitcoin climbing back above $101,000. Additionally, sectors like AI and real-world assets (RWA) are experiencing double-digit recoveries after a brief dip.