The United States Federal Reserve(Fed) maintained the growth projection at +2.1% for 2024, slightly correcting upwards inflation (maintains above the 2% target range). In this context, he maintained the reference rate at the current range of 5.25% -5.5%, but estimates a cut, placing it in a range of 5%-5.25% at the end of 2024.
This would continue to favor global fixed income: the short section of the curve (0 to 3 years duration) is favorable for conservative profiles and the medium section (3 to 7 years) for moderate and growth ones, as can be seen from a Bridge document.
Regarding the market view, futures on the Fed’s implicit interest rate estimate between one and two drops this year, with a first adjustment of a quarter of a percentage point expected in November, in line with the official estimate.
Dollar dynamics
The scenario of high rates for longer than expected predicts certain strength of the US dollar against other currencies. The global dollar index (DXY) advanced +0.7% in the last month to the current 105.5 points, accumulating +4.1% for the year.
The European Central Bank (ECB) decided to reduce the monetary policy rate to 4.25% from the previous 4.5% for the first time in two years since the hike cycle began. The quarterly update of economic outlook was corrected upwards, and given positive economic outlook, greater monetary flexibility is expected for the year. Looser monetary conditions are expected to negatively impact the euro, which will weaken to 1.09 euros per dollar by the end of the year.
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Finally, the Central Bank of England (BoE) decided to keep the monetary policy rate unchanged at 5.25% at its June meeting. The consensus of analysts projects that the interest rate will close at around 4.75% at the end of the year.
Latin America
Following the trend, The currencies of emerging countries weakened in the last month as a result of the rise of the dollar. It is expected that the “relative strength” of the dollar will be maintained against these currencies, which in turn face cycles of softening in monetary policy, which weakens exchange rates.
So far in June, the most affected currencies are the Colombian peso (-7.2%), the Mexican peso (-6.5%), the Brazilian real (-3.6%) and the Chilean peso (- 2.4%). In Argentina, the implicit exchange rate in bonds depreciated -1.1% in the month, which places the gap with the official rate at the current 40%.
Inflationary pressures continue to ease, which has led the main regional central banks to maintain a more flexible monetary policy stance. The Central Banks of Brazil and Paraguay kept the reference rates unchanged at 10.5% and 6%, respectively; in Chile it was cut by 25 basis points (bps) to 5.75%. QOn the Argentine side, the reference rate remains at the current 40%, from 100% at the beginning of the year.
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