T3 Monthly Insights - Jan 2024

Embarking on 2024 with caution, Western central banks carefully navigated rate cut expectations, balancing the risk of renewed inflation against potential harm to growth and jobs. The Federal Reserve maintained rates at 5.25-5.50%, adopting a prudent stance on easing until there is greater confidence in lower inflation. The likelihood of a March rate cut was pushed back and the hawkish tilt pushed DXY 1.92% higher to 103.27.

In the Eurozone, the robust labour market saw the unemployment rate hit a new low of 6.4% in November. The slowdown in January's inflation to 2.8% raised expectations for an ECB rate cut by April. President Lagarde acknowledged expected easing in inflation but cautioned against premature rate cut discussions. As anticipated, the ECB kept its interest rates steady at 4.00% for a third meeting. EUR dipped 2.26% in January to 1.0818.

The Bank of England maintained its key interest rate at 5.25%, with Governor Bailey emphasizing the need for more evidence of disinflation before considering rate cuts. UK store inflation reached its lowest level in 18 months, reflecting an improvement in the cost of living. GBP ended January marginally lower at 1.2688.

As expected, the Bank of Japan kept its policy steady but signaled a potential end to negative rates. Governor Ueda's comments on wages and inflation suggested a shift towards policy normalization, contributing to the yen's gain of 3.88% to close at 146.92.

In Australia, Q4 2023 inflation cooled, dampening rate hike expectations and supporting the case for unchanged interest rates. Meanwhile, New Zealand recorded the lowest Q4 inflation numbers since 2021, and the RBNZ is expected to keep rates steady in its February meeting. Both AUD (-3.78% m/m) and NZD (-3.44% m/m) underperformed G10 peers in January. The Bank of Canada left monetary policy unchanged in its January meeting, and CAD closed the month 1.45% higher at 1.3435.

Gold traded sideways in January, ending -1.14% at $2,039.52 per ounce. Ongoing conflicts in the Middle East, sustained central bank buying, and expectations of lower Treasury yields continue to support gold prices above $2,000, requiring a break above $2,060 for a bullish continuation.

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