Navigating the Current Central Bank Dynamics: Insights from Luca Santos of ACY Securities

As financial markets grapple with uncertainties, one of the key focal points is the anticipated actions of central banks, with many central bankers expressing reluctance towards imminent rate cuts. In this interview, Luca Santos, Technical Market Analyst from ACY Securities, sheds light on the evolving landscape and offers valuable insights into what to expect.

**Fed's Dilemma and Possible Scenarios:**

The Federal Reserve has been under the spotlight, with market participants pricing in a 66% probability of a rate move by March, and this figure potentially rising. According to Santos, the Fed is likely to adopt a cautious approach, closely monitoring economic data. He projects a pause in the next meeting and anticipates a 25 basis points cut in March, followed by further cuts totalling 75 basis points by December 2024. However, he emphasises that Fed Chair Jerome Powell has not ruled out the option of hiking if necessary.

**Market Dynamics and US Dollar Outlook:**

Discussing the US dollar, Santos notes its substantial recovery, currently trading above 103.500. He anticipates a bullish trend continuing until the end of the first quarter, followed by a bearish outlook. The US dollar's strength is expected to wane as the year progresses, influenced by economic factors and Federal Reserve decisions.

**ECB's Position and Future Rate Movements:**

Turning attention to the European Central Bank (ECB), Santos suggests a more dovish stance compared to the Fed. He envisions a potential rate cut in June 2024, emphasising the ECB's focus on a gradual decrease in inflation rather than abrupt fluctuations. The minutes from the December meeting indicate confidence in inflation returning to target levels, but caution remains.

**Bank of England's Strategy amid Surprising Inflation:**

In the UK, the Bank of England faces an interesting scenario with unexpectedly high inflation, driven partly by tobacco taxes and increased government spending. Santos believes that the Bank of England may adopt a strategy of keeping rates higher for a longer duration. This creates a unique opportunity for traders to play an interest rate game between the US and the UK.

**RBA's Approach and Unlikely Rate Cuts:**

Regarding the Reserve Bank of Australia (RBA), Santos expresses a contrary view, suggesting that rate cuts are unlikely in 2024. He highlights the need for lowering inflation and stabilising  the real estate market before any potential cuts may occur.

In conclusion, the interview provides a comprehensive overview of the central banks' dynamics and their impact on global markets. As traders navigate through these uncertainties, Santos' insights serve as a valuable guide, offering perspectives on potential market movements in the coming months.

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