Weekly Outlook: Market Volatility to Persist

December 22, 2024 (MLN): The Bank of England has not altered its interest rate policy. In terms of its policy decision, neither Bank of Japan changed anything. 

However, the Fed has lowered its interest rate by 25 basis points, as expected. 

In contrast to the four cutbacks that were initially anticipated, the dot plot indicates two cuts in 2025. 

The two main areas of focus will be the US labour market and a robust economy, which will be the main forces behind the next action. 

Fed Chairman Powell has said that a slowdown in hiring is an indication that inflation is getting under control, but it might take a year or perhaps two years to reach 2%. 

He also said in his press talk that you should slow down when the future is unclear. The key point of his statement was that Fed may now possibly lower the policy rate with greater caution. Higher inflation will be indicated by a slower rate cut pace. 

And for that reason, I wrote in my last week's column that this time around there might be a hawkish rate cut. In summary, the direction of interest rates in the future will be determined by the state of the economy.

In January when Trump takes over as the President of USA, his tariff policies and geopolitical risks will be the primary determinants of the global economy and all trade related issues. 

While, one of the most significant occurrences last night was that the spending bill was approved although the US Congress was having difficulty passing it. 

The danger was that, as was the case in 2019, the budget plan would not be passed, leading to a great deal of trouble and suffering as a result of the 35 day shutdown. Public service activities and Federal personnel were also impacted. 

In the end, such an action would have upset the global financial system. The US President is anticipated to sign the bill, which would then become law. 

Meanwhile, due to global holidays that will last until the first week of the new year, market activity will decrease over the next few weeks. 

Consequently, there will be less trading volume in the commodities and foreign exchange markets, which could lead to an increase in volatility.

#GOLD @ $ 2621- Gold will have to move beyond $ 2668 for $ 2690. However on the downside, break of $ 2588, risk will increase for a test of $ 2566.

#EURO @ 1.0429- Downside risk is intact. But protection is around support level of 1.0305. Break risk for 1.0260. As long as it holds support level, Euro will make an attempt to move up towards 1.0520-40. 

#GBP @ 1.2569-Sterling may decline to 1.2390-10. However, it is capable of recovering. For additional gains, though, it must clear 1.2680.

#JPY @ 156.41-The upside threat is the possibility of BOJ intervention. It might approach the 160 zone if it moves above 158.90. But a drop below 154.20-40 puts 152.10 at risk.

The writer is the former Country Treasurer of Chase Manhattan Bank

Disclaimer: The views and analysis in this article are the opinions of the author and are for informational purposes only. It is not intended to be financial or investment advice and should not be the basis for making financial decisions.