Volatility and Inflation, Where do We Stand?

Currency value fluctuations can be erratic and snowball from seemingly insignificant triggers. Since the beginning of the year, Volatility and inflation have driven frequent and unpredictable currency movements, often reaching multi-week highs or lows within days.

The U.S. Economy: Too Strong to Cut Interest Rates, Too Weak for Strong Growth

The U.S. economy is growing at a slower pace in 2024 compared to 2023, indicating a decline in consumer spending. However, lower inflation and a strong labor market led Fed Chair Mr. Powell to highlight the economy’s success in managing inflation more effectively.

In the long term, however, the outlook is less clear. High interest rates are slowing real growth, and currently, the Federal Reserve finds itself in a perplexing scenario: the economy is too strong to justify rate cuts, yet too weak for significant expansion.

Volatility and Inflation – Uncertain Direction

November is shaping up to be a revealing month! It marks both the anticipated first Fed rate cut and the U.S. presidential election. However, it's worth noting that the expected number of rate cuts for this year has dropped from six at the start of the year to just one in November.

Additionally, Powell is just one of many officials who may be exploring new career opportunities by the end of November—something to keep an eye on.

Volatility and Inflation: The Eurozone – A Puzzle to Decode

The eurozone economy remains an enigma. Inflation has decreased enough to warrant interest rate easing, yet economic growth remains nearly stagnant. German consumer confidence declined after showing signs of recovery. Seven eurozone member states have received poor ratings due to their growing budget deficits.

Adding to the complexity are the upcoming French elections and Hungarian Prime Minister Viktor Orbán’s six-month presidency of the EU Council. Europe's subdued growth raises an important question: will it secure the financing it needs?

Conclusion

Despite inflation proving more persistent than anticipated, major economies continue moving toward lower interest rates without significant economic contraction.

Canada (Bank of Canada) and the Eurozone (European Central Bank) became the first central banks representing G7 countries to cut borrowing costs. The Bank of England (Bank of England) recently lowered its rate from 5.25% to 5%, with another cut possible before year-end. Meanwhile, the timing of the ECB’s next move remains uncertain, as inflation is still above target. In the U.S., all eyes are on November.

For more insights, explore these articles: Volatility and Inflation in a Context of Economic Growth and  Volatility and Inflation: Impact on Financial Markets

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