One rangebound year in currency markets gives way to another?

The final week ahead of the holiday period is drawing to an end with the US dollar somewhat weaker across the board. Unlike last year, the BoJ’s final policy meeting proved a(nother) damp squib, with policymakers equivocating somewhat on the timing of their much-anticipated policy rate hike. Nonetheless, the yen has rebounded from that disappointment as interest rate expectations elsewhere have resumed their fall in the wake of further signs that inflation is cooling: both the US and the UK recorded weaker-than-expected inflation. Accordingly, the dollar and, especially, sterling have come under renewed pressure as market participants continue to push interest rate expectations in the US and the UK ever lower. As we set out here, we think the yen will continue to rebound in 2024, while sterling remains a laggard as the UK economy weakens further – this week’s GDP data suggests it may already be in a recession.