December 2024 Market Roundup

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Monthly Market Update: December 2024

Currency Movements:

US Dollar (USD):
USD showed significant volatility in December, initially weakening on mixed US data and expectations of a rate cut by the Federal Reserve. However, the Fed’s hawkish tone at its mid-month meeting, revising its rate cut projections for 2025 down to just 35bps, strengthened the USD significantly. Safe haven flows also supported the greenback amid geopolitical uncertainties, including threats of trade tariffs from President-elect Trump and ongoing tensions in Canada and France.

British Pound (GBP):
GBP struggled through December, with weaker UK economic growth figures weighing on sentiment early in the month. Mixed UK data, including slightly stronger wage numbers and higher-than-expected inflation, provided brief support. However, dovish comments from Bank of England officials pointing to multiple rate cuts in 2025 left the currency vulnerable. Rising gilt yields toward the month’s end offered temporary relief, but GBP ultimately closed the month lower against USD and EUR.

Euro (EUR):
EUR experienced a challenging month, driven by political turmoil in France and weak European economic data. While the European Central Bank cut rates by 25bps as expected, its decision was perceived as less dovish than markets anticipated, slightly supporting the EUR mid-month. However, concerns about slower growth and disinflation weighed on the currency, particularly as German and French economic indicators continued to disappoint.

Events Driving the Market:

  1. US Federal Reserve Meeting:
    • The Fed’s 25bps rate cut was widely expected, but its hawkish guidance for 2025 caught markets by surprise. By lowering its dot plot to just two rate cuts next year, the Fed highlighted a robust US economy and diminishing risks in the job market. This pushed USD higher toward the year’s end.
  2. European Central Bank Policy:
    • The ECB’s 25bps rate cut was accompanied by forward guidance suggesting a cautious approach to future easing. Markets adjusted expectations for 2025 rate cuts from 150bps to 125bps, reflecting a less dovish stance than previously forecast.
  3. UK Data and BoE Commentary:
    • UK economic growth contracted slightly in October, setting a bearish tone for GBP early in the month. While stronger wage growth provided temporary relief, dovish BoE commentary about potential rate cuts in 2025 left the pound under pressure.
  4. Geopolitical Risks:
    • Political turmoil in France and South Korea, trade tariff threats from President-elect Trump, and Canadian political instability following the resignation of the Deputy PM all contributed to heightened uncertainty, driving safe-haven flows into USD and pressuring EUR and CAD.

Market Outlook:

As we transition into January 2025, central bank policies, geopolitical developments, and key economic data releases will remain primary market drivers:

  • USD: The Fed’s hawkish stance and strong US economic performance are expected to underpin USD strength, though any signs of fiscal stimulus under President-elect Trump could introduce volatility.
  • GBP: The BoE’s policy outlook will be critical for GBP performance. Markets will watch for clarity on UK growth and inflation trends to assess the likelihood of rate cuts in 2025.
  • EUR: The ECB’s cautious easing and weak European growth data may continue to weigh on the EUR unless significant economic improvements materialise.

Geopolitical risks, particularly in France, Canada, and South Korea, remain key factors to watch as they may influence market sentiment and safe-haven flows.