Feds Surprise Move, Sterling Strength and German Business Contracts.

USD: Federal Reserve’s Surprising Turn Spurs Dollar Decline

Last week, the U.S. dollar, measured by the DXY index, faced significant losses as U.S. Treasury yields plummeted following an unexpected dovish shift by the Federal Reserve. Despite maintaining its policy settings, the central bank surprised markets with a more optimistic view on inflation, discussions about rate cuts, and signaling 75 basis points of easing in 2024. This abrupt change caught investors off guard, leading to a sharp decline in interest rate expectations. The move is seen by many as a damage control tactic to rein in exuberance and prevent further easing of financial conditions.

GBP: Sterling Holds Strong Amid Dollar’s Slip

As we approach the holiday season, the British Pound retains most of its gains from last week, testing 1.2700 against a weakening U.S. dollar. The greenback saw a brief uptick on Friday after Federal Reserve members John Williams and Raphael Bostic pushed back against market expectations of multiple rate cuts in the coming year. However, GBP/USD remains just under 1.2700, with support around 1.2630-1.2600. Resistance is anticipated at the recent high of 1.2791 and the 23.6% Fibonacci retracement at 1.2826.

EUR: German Business Sentiment Dims According to Ifo Report

The latest Ifo report indicates a dimming sentiment in German business, particularly in manufacturing. Companies express dissatisfaction with their current business situation, and outlooks for the first half of 2024 are met with skepticism. Energy-intensive industries face notable challenges as order books continue to shrink. However, the service sector shows a slight improvement in business climate, with service providers expressing satisfaction with current business conditions. Nevertheless, expectations in various sectors, such as trade and catering, reveal a less optimistic outlook.