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Fed turns less hawkish, telegraphs more cuts in 2024

For a third consecutive meeting, the US Federal Reserve’s policy committee held its benchmark interest rate at a 22-year high, but indicated its tightening cycle was likely done, with easing likely to begin in the new year. After 11 increases since March 2022, the target range for the federal funds rate was maintained between 5.25 and 5.5 percent. In a slightly more dovish statement, officials acknowledged that “inflation has eased over the past year,” and softened language to suggest that incoming data would be monitored to determine whether “any” additional policy firming would be appropriate. According to the accompanying “dot...

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Markets wait to exhale

Equity futures are setting up for a positive open, Treasury yields are flat across the curve, and the dollar is holding steady ahead of this afternoon’s Federal Reserve decision. Yesterday’s November inflation report showed price growth levelling off well below post-Covid highs, while also remaining above the Fed’s comfort threshold. Underlying inflation accelerated on a month-over-month basis, and the so-called “supercore” measure—core services excluding shelter costs—often mentioned by Jerome Powell, climbed at an annualized 5.2 percent. According to a separate report, real earnings climbed 0.8-percent in the year to November. This doesn’t mean that progress in reducing inflation is reversing—the...

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US Fed in the spotlight

• Market swings. Some intra-session vol. around the US CPI. But net market moves have been modest. USD softer, though lower oil prices held down the AUD.• US inflation. Data matched predictions. Headline inflation slowed to 3.1%pa, while core steady at 4%pa. Firmer services shows the last leg could be difficult.• US Fed. No policy change expected. While the Fed should reiterate it may do more if needed, we think the forecasts should show that the next move will be a rate cut. There has been a bit of market volatility overnight around the release of the latest US CPI...

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US price growth fades, putting Fed in neutral

US consumer inflation softened as expected last month, but underlying price pressures remained stubbornly strong, reinforcing odds on a more neutral stance from the Federal Reserve at tomorrow’s meeting – and beyond.  According to data published by the Bureau of Labor Statistics this morning, the core consumer price index – with highly-volatile food and energy prices excluded – rose 4.0 percent in November from the same period last year, up 0.3 percent on a month-over-month basis. This was precisely in line with consensus estimates among economists polled by the major data providers ahead of the release.  On a headline all-items...

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Dollar fades into inflation print

Treasury yields are down, equity futures are up, and the dollar is retreating as traders take positions ahead of this morning’s inflation report. Economists think core consumer prices accelerated modestly while the headline measure remained broadly unchanged last month, giving the Federal Reserve room to begin unwinding its tight policy settings. Yesterday, the New York Fed’s November Survey of Consumer Expectations showed year-ahead inflation expectations falling by 0.2 percent to 3.4 percent, marking the lowest reading since April 2021. The yen is softer after bets on an abrupt change in the Bank of Japan’s policy framework suffered another setback last...

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