• Although domestic economic data is moving in the right direction, the increased uncertainty on global growth and inflation over the past month is likely to keep the Fed off the trigger at the September FOMC meeting.

  • We now expect the first Fed funds rate hike to be delivered in December this year but stick to our view that the hiking cycle will be significantly faster than what is currently priced. We look for an average of 100bp in hikes per year.

  • We have updated our US yield forecast with the new fed funds rate path and now see a slower pace of increase in yields and less flattening of the curve in the coming 3-6 months. The projected rates remain above forward rates across the curve.

  • Our EUR/USD forecast is revised upwards: we now stress that the EUR/USD low is probably behind us. Some EUR/USD downside is still in store, but we now see the pair trade in the 1.08-1.12 interval on a 3-6M horizon moving higher further out. Specifically, we see EUR/USD at 1.13 in 1M, 1.10 in 3-6M, and 1.15 in 12M.


Downside risks to global growth have risen

Today’s weak PMI out of China add further to the rising sense of uncertainty about global growth and we expect the weakness in the Chinese PMI to extend into coming months (see Flash Comment China: Drop in Caixin PMI in August suggests substantial weaknessin Q3 and pressure on PBoC to ease further, 28 August). The sell-off in emerging markets has now fuelled a more general souring of risk sentiment across assets.

Adding to this, credit spreads in the US have widened lately, driven by the high-yield energy sector but with spillover to more general financing costs. Finally, the change to a more market-based currency regime in China has increased the impact of higher US rates to the effective USD. In particular, the weakness in the August Caixin PMI suggests that the pressure on China to ease policy further, including further depreciation of the CNY, has increased. The bottom line is that there is currently uncertainty about both the policy response from China and the magnitude of the weakness in emerging markets growth.

This publication has been prepared by Danske Bank for information purposes only. It is not an offer or solicitation of any offer to purchase or sell any financial instrument. Whilst reasonable care has been taken to ensure that its contents are not untrue or misleading, no representation is made as to its accuracy or completeness and no liability is accepted for any loss arising from reliance on it. Danske Bank, its affiliates or staff, may perform services for, solicit business from, hold long or short positions in, or otherwise be interested in the investments (including derivatives), of any issuer mentioned herein. Danske Bank's research analysts are not permitted to invest in securities under coverage in their research sector.
This publication is not intended for private customers in the UK or any person in the US. Danske Bank A/S is regulated by the FSA for the conduct of designated investment business in the UK and is a member of the London Stock Exchange.
Copyright () Danske Bank A/S. All rights reserved. This publication is protected by copyright and may not be reproduced in whole or in part without permission.

Recommended Content


Recommended Content

Editors’ Picks

EUR/USD trades weak below 1.0800 amid Good Friday lull, ahead of US PCE

EUR/USD trades weak below 1.0800 amid Good Friday lull, ahead of US PCE

EUR/USD remains depressed below 1.0800 after soft French inflation data, amid minimal volatility and thin liquidity on Good Friday. The pair keenly awaits the US PCE inflation data and Fed Chair Powell's speech for fresh hints on next week's price action. 

EUR/USD News

GBP/USD holds steady above 1.2600 as markets stay calm on Good Friday

GBP/USD holds steady above 1.2600 as markets stay calm on Good Friday

GBP/USD trades sideways above 1.2600 amid a typical Good Friday trading lull. A broadly firmer US Dollar could keep any upside attempts limited in the pair ahead of the US PCE inflation data and Fed Chair Powell's appearance. 

GBP/USD News

Gold price sits at all-time highs above $2,230, US PCE eyed

Gold price sits at all-time highs above $2,230, US PCE eyed

Gold price hit all-time highs at $2,236 on Thursday to finish Q1 2024 with a bang. Most major world markets, including the US are closed due to Holy Friday, leaving volatility around Gold price highly subdued. US PCE inflation and Powell are awaited. 

Gold News

Jito price could hit $6 as JTO coils up inside this bullish pattern

Jito price could hit $6 as JTO coils up inside this bullish pattern

Jito (JTO) price has been on an uptrend since forming a local bottom in early January. Since then, JTO has revisited the key swing point formed in early December, suggesting the bulls’ intention to move higher.

Read more

Key events in developed markets next week

Key events in developed markets next week

Next week, the main focus will be inflation and the labour market in the Eurozone. We expect services inflation to be impacted by the easter effect, while the unemployment rate to be unchanged.

Read more

Majors

Cryptocurrencies

Signatures