Fed, ECB Rate Cut Bets in 2024 Hinge on US-Europe Growth Divergence
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The consensus is that major central banks like the Fed and ECB will cut interest rates in 2024 due to slowing economies and easing inflation. However, the US economy is diverging and outperforming Europe's, so the ECB may need to cut rates faster.
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The US dollar surged in 2022 due to exceptional US economic performance. But it fell in October when the Fed hinted it was nearly done with rate hikes, sparking a risk rally.
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Strategists believe tighter rates will slow US growth in 2024, allowing the Fed to cut rates and triggering dollar weakness as investors diversify away from the dollar.
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Markets are priced for significant Fed rate cuts in 2024, but if the ECB cuts rates faster due to weakness in Europe, it could strengthen the dollar and surprise markets.
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The consensus calls for declining rates and a dollar bear trend in 2024, but dollar strength could catch markets off guard if other central banks are forced into more accommodative policies.