The Xe Global Currency Outlook - July 2024

Welcome to Xe’s Global Currency Outlook, your go-to resource for understanding the dynamic world of currency exchange. Each month, we’ll bring you the key insights and trends shaping the global currency landscape.

Here’s what to watch in July 2024:

Global Central Bank Movements

Several central banks are taking steps to adjust their interest rates:

• Cutting Rates
  The European Central Bank (ECB), Bank of Canada, Swiss National Bank, Sweden’s Riksbank, and the People's Bank of China have all begun reducing rates.

• Holding Steady
  The U.S. Federal Reserve, Reserve Bank of Australia, and Reserve Bank of New Zealand have chosen to maintain their current rates.

• Upcoming Cuts
  The Bank of England has hinted that it may start cutting rates in August.

These differing policies are influencing exchange rates worldwide.

USD: Strong and Steady

The U.S. dollar has strengthened since early June, buoyed by a robust economy and delayed rate cuts from the Federal Reserve. The Federal Open Market Committee (FOMC) signaled there might be only one rate cut this year, down from an earlier forecast of three. This suggests the USD will remain strong for a while.

EUR: Facing Challenges

The ECB has cut rates by 25 basis points (bp) to 3.75% but raised its inflation forecast due to concerns over wage pressures. Political developments in France have increased the risk premium on French bonds, putting downward pressure on the euro.

GBP: On the Edge

With the Bank of England potentially cutting rates soon, the British pound is experiencing some downward pressure and could dip to its 200-day moving average of 1.2558 in the coming months.

CAD: Resilient Performance
The Bank of Canada began its rate-cutting cycle on June 5, ahead of the U.S. Federal Reserve. The Canadian dollar remains strong, thanks to firm energy prices and strategic rate cuts offering some “growth insurance,” showing resilience against the euro.

JPY: Weak But Watchful
The Japanese yen is weak due to the wide interest rate gap with the U.S. However, if the Fed cuts rates and the Bank of Japan stops monthly bond purchases, we could see USD/JPY drop to 145.00 by year-end.

CNY: Struggling Economy
China’s economy is grappling with a prolonged property crisis. Lower interest rates and economic struggles are leading to further depreciation of the yuan, with USD/CNY expected to reach 7.2800 soon despite efforts by the People's Bank of China (PBoC) to stabilize it.

AUD: Balancing Act
The Australian dollar is strengthening because the Reserve Bank of Australia is carefully managing interest rates to avoid high unemployment, even though this means a slower decline in inflation.

NZD: Steady Amidst Weakness
With headline inflation at 4.0% and non-tradeables (domestic) inflation at an even higher 5.8%, the Reserve Bank of New Zealand is keeping interest rates at 5.50%, supporting the NZD. Despite emerging from a double-dip recession, the economy remains weak, but this isn’t dampening the currency’s support.

Political Volatility
Political developments are causing fluctuations in the euro, Mexican peso, and South African rand. Historically, these impacts are temporary, but they’re worth watching.

Stay tuned for more updates and insights next month as we continue to navigate the ever-changing world of global currencies.

The content within this blog post is not intended for use as financial advice. This content is for informational purposes only.