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- The Australian dollar crashed after the RBA interest rate decision.
- The US dollar index has continued rising ahead of the Fed decision.
- The British pound plunged after the weak UK GDP data.
- The Mexican central bank will deliver its interest rate decision this week.
- Other top central banks to watch were from Indonesia, Taiwan, Thailand, and Japan.
Australian dollar crashes after RBA
The Australian dollar crashed to its lowest level in over 12 months after the Reserve Bank of Australia (RBA) delivered its interest rate decision. The bank decided to leave interest rates unchanged as it has done throughout the year. However, the bank hinted that a rate cut was coming soon, most probably in February.
The Australian economy is struggling. Recent data showed that the economy remained sluggish in the third quarter. It expanded by 0.8% in the last quarter, the weakest growth rate since 1991. This slowdown happened even as the government spending continued rising.
One reason for the slowdown is that the Chinese economy is not doing well as the real estate industry has imploded. China is Australia’s biggest trading partner, which explains why its economy is slowing.
US dollar index rises ahead of Fed
The US dollar index continued rising, reaching a high of $107, which is almost 7% above its lowest level this year. Its rally accelerated after the US published the headline Consumer Price Index (CPI) data. These numbers showed that the headline CPI rose from 2.4% to 2.6%, while the core CPI remained at 3.3%.
The next important catalyst for the US dollar index will be the upcoming Federal Reserve interest rate decision. Economists expect the Fed will deliver its third interest rate cut of the year, bringing the total cuts to 1%.
The Fed is cutting rates as concerns about the labor market as the unemployment rate rose to 4.2%. In a note, analysts at ING Bank said:
“The Fed is expected to cut rates by a further 25bp on 18 December as it continues to move policy from restrictive territory to somewhere closer to neutral. However, with inflation remaining sticky the Fed is set to signal a more cautious policy easing profile for 2025.ING Bank
Sterling tumbles after weak GDP data
The GBP/USD exchange rate crashed to 1.2620, its lowest level since December 2. This decline accelerated after the UK released weak economic numbers. Data showed that the economy contracted by 0.1% in October, missing the expected growth of 0.1%. It grew by 1.3% on an annualised basis, also lower than the expected 1.6%.
More data showed that the economy continued to underperform. Manufacturing and industrial production dropped by 0.1% and 0.6%. The construction output also fell by 0.7% during the month.
These numbers mean that the Bank of England will maintain a dovish tone in the next meeting. Analysts see the bank cutting rates by 0.25% on Thursday, and point to more cuts in 2025.
The GBP/USD pair will also react to the upcoming UK inflation data scheduled on Wednesday. Economists expect the data to show that the headline CPI rose from 2.3% to 2.6%, while the core CPI jumped to 3.6%.
Mexican peso strengthens ahead of Banxico decision
The Mexican peso has gained momentum against the US dollar even as risks about tariffs rose. Donald Trump has promised to hike tariffs on all goods from Mexico, undercutting the USMCA deal thar he signed. Therefore, the MXN currency has strengthened as investors predict that Trump will not go through with his threat.
The Mexican peso will react to the upcoming Banxico decision and key economic data. The country’s statistics agency will publish the latest GDP data on Wednesday, while the central bank will cut rates again.
It has been in a rate cut cycle, moving them from the year-to-date high of 11% to the current 10.25%. As such, analysts expect that the bank will bring rates to 10.0% this week.
Top central bank decisions
This will be a busy week for the forex market as several central banks meet and deliver their final interest rate decisions of the year.
The first central bank to watch will be the Hungarian one, where the recently appointed governor will deliver its interest rate decision. The bank has slashed rates from 13% to 6.5% to cushion the ailing economy. Data shows that the Hungarian forint has crashed to near 400 against the US dollar.
The other top central banks to watch will be from Indonesia and Thailand. Economists expect the Indonesian central bank will cut again by 0.25% to 5.75%. The Indonesian rupiah, like other emerging market currencies, has also dropped to 16,000, its lowest level since August 8.
Meanwhile, the other crucial central bank to watch will be the Bank of Japan (BoJ) on Thursday. This will be a crucial decision since the bank may decide to hike interest rates since inflation has remained high. The USD/JPY pair has risen to 153.57, its highest level since November 26.
The other top central banks to watch will be from Sweden, Taiwan, the Phillipines, Norway, and Russia.
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