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US dollar pressured by Fed rate cut expectations

Volatility in the currency market remained elevated as 2023 came to a close, with bets on central bank interest rate cuts triggering some notable swings.

During this period, we’ve seen GBP/EUR fall back from €1.16 to €1.15, while EUR/GBP ticked up from £0.85 to £0.86.

Meanwhile, GBP/USD briefly climbed to $1.28, before settling at $1.26, while EUR/USD jumped from $1.08, to $1.10.

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Staying on top of the latest currency news can help you time your transfers more effectively, so find out what you should be looking out for over the next couple of weeks…

What’s been happening?

The US dollar experienced a turbulent end to 2023 amid the growing expectation that the Federal Reserve will be the first of the major central banks to begin cutting interest rates. With the first cut priced in for March.

The pound also faced some volatility at the end of December. A weaker-than-expected inflation print and downwards revision to UK GDP in the third quarter saw Sterling stumble as it stoked expectations the Bank of England (BoE) may begin cutting interest rates earlier than previously thought.

Meanwhile, the euro was supported by its negative correlation with the US dollar as well as hawkish remarks from European Central Bank (ECB) policymakers.

What do you need to look out for?

The US dollar could struggle at the start of 2024 as data showing a forecast drop in US payrolls may reinforce Fed rate cut bets.

In contrast, the Eurozone is expected to report a spike in inflation last month, which may weaken ECB rate cut expectations and propel the euro higher.

Meanwhile, GBP investors will be keeping a close eye on the UK’s latest GDP figures. Will another contraction of growth in November stoke UK recession fears and pull the pound lower?

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