Central banks are living up to their name and are once again central factors for the currency markets. While the US data could postpone the start of the Fed's rate-cutting cycle and thus provide a tailwind for the dollar, the SNB's actions suggest that it is more likely to take the wind out of the franc's sails and bring it to a weaker level. In Hungary, the central bank could credibly convey that interest rate cuts will proceed more cautiously, supporting the HUF. Further across the border in Romania, continued strong capital inflows ensure a stable currency. Last but not least, the NBU once again demonstrated that it has the means to stabilise the FX market in Ukraine. This issues features
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In this quarterly asset allocation update, we provide the typical Croatian EUR investor with an in-depth market analysis, explanations of the individual asset classes, and the optimal portfolios under various risk tolerance levels. |
The pursuit of record highs on the international stock markets continues, which is primarily due to the ongoing AI-rally and the renewed optimism about interest rates. The latter has been fuelled by the central banks themselves as the feared hawkish turnaround, due to the recent higher inflation data, has not only failed to materialise, but the Swiss central bank has even gone ahead with a surprising interest rate cut. However, the momentum could already be put to the test in the coming week, as the much-watched PCE price data in the US is on the agenda. |
The Fed keeps key rates constant and maintains a low profile on when to expect a first rates cut. Greater confidence in achieving price stability is still needed. Higher than expected inflation readings in January and February are no game-changer but rather part of a bumpy road towards the inflation target. Looking at the Fed's projections 75 basis points in rate cuts remain the base case for 2024 (unchanged to December). It is unlikely that key rates will be lowered at the next meeting in May. What will be done, however, is to slow the pace of quantitative tightening. The balance sheet will continue to decline, yet slowing the pace will allow the Fed to better assess when 'enough is enough'. For markets it was a dovish meeting given the hawkish positioning in advance. |
Long awaited but still earlier than expected, the ECB communicated some key principles for implementing monetary policy and providing central bank liquidity. Not all is clarified yet and most of the changes are only relevant in the longer-run.
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