IMF's Commentary on the Fed, New Demands from Trump, HSBC's Dollar Forecast: Recent Developments in Global Markets
The world economy continues to be shaped by monetary policy moves in various countries and economic uncertainties. In the U.S., the Fed's interest rate policies, El Salvador's Bitcoin strategy, interest rate decisions in China and Mexico, Trump's comments on the debt ceiling, and volatility in foreign exchange and bond markets are among the notable developments in global markets. The assessments from the International Monetary Fund (IMF) regarding these developments provide important insights into determining the direction of economic dynamics.
IMF's Commentary on the Fed The International Monetary Fund (IMF) indicated that it supports the Federal Reserve's (Fed) decision to lower interest rates and adopt a cautious stance due to economic uncertainties. IMF spokesperson Julie Kozack expressed that recent data showed a cooling in the labor market and a reduction in inflation aligning with targets, thus supporting the Fed's actions.
On the other hand, regarding Bitcoin usage in El Salvador, the IMF stated that the $1.4 billion agreement with El Salvador aims to mitigate the risks associated with Bitcoin. It was reported that with the legal reforms in place, the acceptance of Bitcoin in the private sector would be regulated on a voluntary basis.
Trump Wants to Lift the Debt Ceiling U.S. President-elect Donald Trump expressed his intention to lift the debt ceiling. In an interview with NBC News, he stated that he would seek to completely eliminate the debt ceiling. Trump, who had previously exhibited an opposing stance during Republican presidencies regarding increasing the debt ceiling, announced his intention to change this approach. He emphasized the need for Congress to seek a permanent solution to the recurring debt ceiling increases and government funding issues.
Foreign Interest in U.S. Assets Declines The U.S. Department of the Treasury announced that foreign investors' interest in long-term U.S. securities decreased in October. Investors who made $216.1 billion in purchases in September carried out purchases of $152.3 billion in October. In contrast, there was a notable net purchase of $92.1 billion in U.S. Treasury bonds. The amount of U.S. Treasury bonds held by China decreased from $772 billion to $760 billion.
Chinese Central Bank Holds Interest Rate Steady The People's Bank of China maintained the reference one-year loan prime rate (LPR) at 3.10% and the five-year LPR at 3.60%, in line with expectations. The LPR affects banks' loan pricing, with the five-year rate playing a critical role in mortgage pricing. Market participants in China regarded these developments as anticipated actions.
Mexico Central Bank Cuts Interest Rate The Bank of Mexico reduced its policy interest rate by 25 basis points to 10% following an unexpectedly large slowdown in inflation. The five-member board reached this decision unanimously. The move is seen as a step towards combating inflation in the Mexican economy.
Japan Concerned About Currency Movements Japan's Finance Minister Katsunobu Kato expressed concerns about excessive volatility in the foreign exchange market due to speculative movements. The minister stated that appropriate measures would be taken against such movements. The Japanese yen reached its highest level against the dollar since July.
Moody's Forecasts Japan's Inflation Moody's Analytics economist Stefan Angrick announced that inflation in Japan may gradually decline by 2025. He noted that inflation would remain high in the near term due to reduced government support for energy bills and rising food prices. With the yen depreciating against the dollar, this situation increases the likelihood of a currency intervention.
HSBC's Evaluation of the Dollar HSBC analysts stated that the U.S. dollar is expected to perform well in 2025. According to analysts' reports, the reason for the dollar's strength during Trump's second term will be higher U.S. Treasury yields and divergence in the global growth cycle. A challenging year is anticipated for currencies that are highly correlated with the U.S. economy.