Forex Market Trends 2024: What to Watch Out
The forecast for the Forex market in 2024 indicates an uncertain year ahead. The consensus suggests further dollar weakness based on economic data. However, significant risks exist and could swiftly reverse this trend and many others. Read the article to learn about 2024 market trends and make informed decisions.
Trends in the US
The state of the US economy in 2024 will be influenced by various factors such as monetary policy, the labor market, and inflation trends.
Sachs Research predicts that the US economy will continue to grow in 2024 despite concerns of a recession. They forecast a 1.8% growth in GDP on a Q4/Q4 basis (or 2.1% on a full-year basis), which is higher than the low consensus expectations.
Economists predict consumption growth of just under 2%, with nearly 3% growth in real disposable income, offset by a 1-percentage point increase in the saving rate. They also anticipate that the Federal Open Market Committee (FOMC) will cut rates for the first time in 2024Q4 once core PCE inflation falls below 2.5%.
On the other hand, J.P. Morgan predicts that economic growth will likely slow down in 2024 as the effects of monetary policy take a broader toll and the post-pandemic tailwinds fade. They expect modestly positive or slightly negative real GDP growth for much of next year (known as a soft landing). After an above-expected 2.8% real GDP growth in 2023, they forecast a below-trend 0.7% pace of expansion in 2024.
Inflation trends are cooling down but are expected to remain above the Fed’s 2% target through 2024. After reaching a four-decade high in 2022, inflation on both a headline and core basis has moderated significantly in 2023. They expect moderating shelter inflation in 2024 as the lag in market rent pricing should catch up in the inflation readings. They forecast core PCE prices, the Fed’s preferred inflation metric, to increase by 2.4% in 2024, down from 3.4% in 2023.
To sum it up, the US economy may face some challenges in 2024, but there are also indications of growth and recovery, especially as the effects of monetary policy and inflation trends diminish.
European trends
Various factors are expected to influence the European economy in 2024, including the performance of new governments, decarbonization efforts, and the impact of the European Central Bank’s policies.
According to Goldman Sachs Research, the Euro area is expected to experience a significant acceleration in real income growth to around 2% by the end of 2024. This prediction is based on their positive outlook for real disposable income growth, lower headline inflation, and strong labor markets.
Despite the energy crisis, the European economy has shown surprising resilience and has not fallen into a recession. However, growth has been disappointing since spring due to ongoing negative effects from high gas prices, a large drag from monetary tightening, and weak global industrial activity.
The European Central Bank expects economic growth to remain weak in the short term due to tight financing conditions and low export growth. However, as inflation falls, household income recovers, and foreign demand strengthens, the economy is expected to grow by 0.6% in 2023, 0.8% in 2024, and 1.5% in 2025 and 2026.
General market trends
💲 Dollar bear trend
The prevailing outlook for 2024 suggests that the dollar bear trend will gain momentum throughout the year. Currencies against the dollar could strengthen by as little as 2% (China’s renminbi) to as much as 13% (Scandinavian FX) compared to year-end 2024 forwards.
The US dollar’s supremacy is predicted to decline in 2024 due to factors like tighter interest rates, slower growth, and increased competition from other currencies. This shift could lead to greater diversification among investors, creating opportunities for non-dollar currencies.
💹 Rise of growth currencies
With a lower US interest rate environment, ‘growth’ currencies, similar to growth stocks such as tech and real estate, could experience a recovery. The Swedish krona, for example, may be one currency to watch in this regard.
❗ Key risks
Forex traders should be mindful of various risks that could significantly impact the currency market in 2024. These risks include global recession, geopolitical escalations, protectionism, contagion in emerging markets, market liquidity, black swan events, and central bank policy errors.
What to look out for?
Considering the 2024 outlook, recommended Forex trading strategies include going long on USD and short on EUR and JPY, favoring commodity currencies like the Canadian and Australian dollars, monitoring potential USD trend reversals, trading geopolitical event risks, and emphasizing risk management.
These are the general trends and forecasts. Actual market conditions may vary – and the time will show how. Remember to conduct thorough research to make informed trading decisions.
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