Asian markets stumble, central banks in focus

Investor caution ahead of key central banks decisions; Dollar strengthens on hawkish Fed tone

By Ahmed Azzam | @3zzamous | 18 December 2023

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  • Asian equity markets dip in anticipation of central bank updates.

  • Dollar index rallies on Federal Reserve officials' hawkish comments.

  • Goldman revises FX forecasts, predicting dollar weakness and stronger yen, pound, and krona.

Central bank decisions rattle Asian markets

Asian equity markets opened the week on a weaker note as investors brace for pivotal central bank decisions. The Bank of Japan and the People’s Bank of China are at the center of attention, with key policy announcements expected this week. Markets in Australia, Japan, Hong Kong, and mainland China all registered declines, reflecting a cautious investor sentiment ahead of these critical updates.

Dollar gains on hawkish Federal Reserve remarks

The dollar index found support from a hawkish stance adopted by several Federal Reserve officials, including the New York and Chicago Presidents. Their comments have dampened speculation about a potential rate cut in March next year, leading to a surge in the dollar's strength. This shift in market expectations highlights the influential role of central bank rhetoric in shaping currency dynamics.

Goldman's FX forecast and crude oil update

Goldman Sachs has adjusted its foreign exchange forecasts for 2024, now expecting more weakness in the dollar and an improved outlook for several currencies, including the yen, pound, and Swedish krona. The yen, in particular, is projected to strengthen to 135 against the dollar by the end of 2024, driven by a narrowing interest-rate differential with the US. Additionally, Goldman has revised its Brent crude forecast down by $10, anticipating an average of $81 per barrel next year, with a peak of $85 in June.

WTI crude futures and global energy concerns

WTI crude futures rose towards $72 per barrel, continuing gains from the previous week. This increase is partly attributed to reduced exports from Russia and heightened security concerns in the Red Sea. Russia announced further cuts in oil exports, aiming to support oil prices, while the geopolitical tensions in the Red Sea have led major shipping lines to avoid the Suez Canal route. These developments, combined with ongoing assessments of the global economic and monetary policy outlook, are crucial factors influencing the future of energy demand.

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