Collinson FX: Dec 5 - Future interest rate rises may slow in US in December

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Dec 5: Rate of future interest rate rises may slow

The long-awaited and much anticipated Non-Farm Payroll’s number was released Friday and promptly ignored by markets, being treated as benign. It was neither weak enough to trigger fears of a recession, nor strong enough, to ‘green-light’ continued strong Federal Rate hikes. It could not have been orchestrated better.

The week past was positive, in terms of Central Bank discourse, with the Federal Reserve Chairman confirming the rate of future interest rate rises may slow, as early as December. Energy prices have continued to soften, allowing market speculation that Western economies have reached ‘peak-inflation’. The Northern winter has just begun, so a lot will depend on the severity of the season, but global warming should ensure a short and mild winter. Energy prices will determine whether Europe and the US have turned the inflation corner.

Risk appetite rallied and US Bond Yields fell, along with the US Dollar. The EUR has rallied to above 1.0500, while the Yen has re-ignited due to tighter market interest rate differentials, pushing back to 134.00.

Recessionary fears are diminishing, in spite of the release of a slew of dreadful economic data points, allowing the prospects of commodity currencies to brighten considerably. The NZD, in particular, has been a major beneficiary, rallying back towards 0.6400, while the AUD has once again regained 0.6800. The coming week will focus initially on global PMI data and then turn to Central Bank action. The RBA, Bank of Canada and Reserve Bank of India are all expected to raise rates, but the margin will be key, along with the narrative. Keep a very close eye on the weather.

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