Politics and monetary policy to drive volatility in the Pound (GBP)?
Monetary policy from the Bank of England (BoE) is likely to drive most movement in the Pound (GBP) this year. The BoE has signalled it will cut rates later than other banks, which could see Sterling strengthen through the first half of the year. However, if falling inflation prompts the bank to cut sooner then GBP may weaken.
Elsewhere, the UK is set to hold a general election in 2024, likely in May or October. According to a Bloomberg poll of investors, an expected Labour victory could be good for the market. However, political uncertainty surrounding the vote may cause volatility.
Euro (EUR) to suffer amid Eurozone economic concerns?
Similarly, the Euro (EUR) may be driven by European Central Bank (ECB) policy through much of the year. If cooling inflation and economic weakness push policymakers to cut rates early this year, the single currency could slide. Conversely, stubborn inflation could delay rate cuts and therefore boost the Euro.
The potential for a Eurozone recession may also weigh on EUR exchange rates. Higher interest rates hammered the bloc through 2023. We may see the Euro weaken if this leads to a downturn in 2024.
US Dollar (USD) to weaken as Fed unwinds policy tightening?
The US Dollar (USD) could be in for a rocky ride this year. With economists expecting the Federal Reserve to start cutting interest rates in March, and a potential risk-on rally in global markets, the safe-haven ‘Greenback’ could come under notable pressure in the first half of 2024.
The end of the year could be even more dramatic, with the US Presidential election to be held in November. After Donald Trump’s removal from the ballot in Colorado and Maine, the Republican candidacy is uncertain. Political turbulence could spark volatility in USD.
Canadian Dollar (CAD) to rally alongside rising oil prices?
The Canadian Dollar (CAD) is likely to remain linked to oil prices this year, although the correlation between CAD and crude has become weaker. If looser monetary policy boosts global growth and drums up demand for oil, then the ‘Loonie’ could have a strong year.
However, interest rate cuts from the Bank of Canada (BoC) could undermine CAD exchange rates. In addition, the Canadian Dollar could suffer from its increasingly strong positive correlation with USD.
Australian Dollar (AUD) to climb amid risk-on rally?
The risk-sensitive Australian Dollar (AUD) could strengthen this year if we see a dramatic turnaround in risk appetite. More accommodative monetary policy from the US Federal Reserve and other central banks could spur global growth, thereby cheering investors and boosting AUD’s appeal.
However, worries about deflation in the Chinese economy could cap the currency’s upside. In addition, recession fears and rising geopolitical tensions have the potential to derail the market mood.
New Zealand Dollar (NZD) to be undermined by recession fears?
Likewise, the New Zealand Dollar’s (NZD) fortunes may be tied to risk appetite this year, with the ‘Kiwi’ likely to climb if interest rate cuts from the world’s key central banks drive a bullish run in the markets.
Concerns about the New Zealand economy could put pressure on NZD exchange rates. The country’s economy unexpectedly contracted 0.3% in the third quarter of 2023, putting it on uncertain footing as the new year begins.