Higher interest rates are not always positive for the exchange rate
At first glance, the outlook for next year appears positive. Economic growth of around 1% is expected for Europe and over 2% for the United States. The general expectation is also that long-term interest rates will not change much, especially since inflation is widely expected to decline gradually. This provides a favorable backdrop for equities, and this expectation has recently been reinforced by:
- better-than-expected U.S. inflation figures;
- an oil price that, from a technical chart perspective, appears on the verge of breaking downward.
If this happens, a further decline of $10 to $15 can be expected. Should this trend continue, it would give central banks additional room to cut interest rates further.
However, the situation is more complicated...
