- The Swiss National Bank opened the door to rate cuts last week.
- There is doubt in the market whether the Fed will cut in June.
- All BoE policymakers are now neutral, with no one calling for a rate hike.
Currency futures fell on Friday as the global rate-cut outlook changed. Other central banks are becoming more dovish, leading to an increase in bets that cuts will start this year. Meanwhile, the outlook for Fed rate cuts remains uncertain as the economy remains robust and inflation persists.
Notably, the Swiss National Bank opened the door to rate cuts last week, becoming the first major central bank to ease its monetary policy. Consequently, investors gained confidence that other major central banks will start easing their monetary policies as well. This led to a decline in all currency futures except the yen.
Additionally, the decline came as the dollar strengthened, and the Fed seemed less dovish compared to its peers. Although Fed policymakers have signaled rate cuts, they are waiting to gain more confidence that inflation is on a downtrend. However, this might not happen soon, as economic data has shown higher-than-expected readings. Moreover, there is little risk of a recession in the US as the economy remains resilient despite high rates. Consequently, there is doubt in the market whether the Fed will cut in June.
Meanwhile, rate-cut bets in other major economies like the UK, Canada and the Eurozone have been on the rise. In Canada, inflation figures missed forecasts last week, pushing the likelihood of a June cut above 70%. Moreover, data on Friday showed a drop in retail sales in the country, indicating weak consumer spending. With inflation declining and the economy slowing down, the Bank of Canada is under a lot of pressure to cut rates. Consequently, the Canadian dollar fell on Friday.
BoE votes (Source: Bank of England)
Similarly, the pound dropped on Friday, a day after the Bank of England held rates and took on a more dovish stance. Inflation in the UK has also been declining faster than expected. As a result, there is a higher chance that the Bank of England will cut rates in June. All BoE policymakers are now neutral, and no one is calling for a rate hike.
Meanwhile, the yen strengthened on Friday due to fears of an intervention after days of sliding. Although the BoJ hiked rates last week, it came in line with expectations, leading to a significant fall in the yen that only paused on Friday.
