08/01 Indices, page-69

COMMENT-Growing concerns surround aggressive rate cut pricing

Jan 12, 202422:08 GMT+11

USDJPY−0.04%USDCAD−0.11%GBPUSD−0.28%AUDUSD−0.01%
Concerns about aggressive market pricing for global interest rate cuts appear to be growing, especially in the wake of Thursday's hotter than expected U.S. CPI data.
Bank of America reaffirms its previous calls for central banks to cut less than the market is currently pricing. They expect the U.S. Federal Reserve to cut four times and to start that easing in March and the European Central Bank just three times and to start in June. The Bank of England will cut twice and start in August, while they expect the Reserve Bank of Australia to leave rates on hold through 2024.
This compares with market pricing of six 25bps cuts for the Fed and ECB, five for the BoE and two for the RBA. If these views prove correct then USD weakness could prove harder fought, but EUR/USD and GBP/USD would do well and AUD/USD even better.
Bank of America's baseline case remains that this is a year to sell any USD rallies, even if rate cuts prove less than currently priced. As long as there is a soft landing and U.S. growth slows versus the rest of the world, the USD should ease from what BoA see as still overvalued levels and particularly against higher beta currencies such as AUD, CAD and the Scandinavians.