Will rate hikes end when 2023 ends?

Finally, after a seemingly endless period of interest rate increases by the US Federal Reserve over the past few years, there is some degree of inkling that the rate rises may come to an end at the end of this year.

This morning, some mainstream media speculation has surfaced, considering that Federal Reserve officials are finally looking at making no further interest rate increases in 2024.

Currently, this is pure speculation based on some recent sentiment from the central bankers, and there has been some mention of a potential cessation in increasing interest rates in the last quarter of this year, which did not come to fruition. Instead, the current monetary policy continued, despite inflation now being very much under control and nowhere near the double-digit figures of two years ago, which caused the Federal Reserve (and other central banks in Western markets) to increase interest rates.

Therefore, the currency markets have responded accordingly. Rather than a sudden rise in the value of the US dollar, the British pound has been forging ahead.

In the period between November 9 and December 1, the British pound surged against the US dollar, going from 1.2290 to 1.27. Such gains are relatively rare among major currencies, and quite often, just a 1-cent difference is considered a notable movement.

This shows a combination of fortitude in the British economy but also that the investing public and corporate leaders are waiting to see if the rate increases do actually stop before making important decisions.

Interest rate increases are designed to curb spending, but the byproduct of them is that members of the public end up with higher monthly payments on mortgages and unsecured credit, and large corporations have to pay more each month to service their commercial finance agreements.

It was cheap credit that contributed to the financial crisis in the first decade of this Millennium. Therefore, extreme caution is now the order of the day within the monetary policy of the United States government.

The British pound's strong rally against the US dollar over the course of last week is very interesting, given that speculation is now not a gauge for potential changes in US monetary policy and that the US dollar had been very strong for a long time despite bank collapses and high profile woes associated with geopolitical wranglings.

Overall, the sudden volatility appears to be tailing off, with the pound having slightly dropped from its values reached at the end of last week, but overall, it is still very high, having not reached this level against the US dollar since the beginning of September.