In the latest updates on the global economy, the Federal Reserve has indicated a shift in its interest rate cut plans, while the Bank of Japan has left investors patiently awaiting details on its bond buying reduction. Additionally, euro declines were observed after far-right political parties emerged dominant in European elections. Here are the key highlights from this week's developments:

According to the median projection, Federal Reserve officials now anticipate just one interest-rate cut for this year, compared to the previously forecasted three reductions in March. This projection strengthens policymakers' stance to maintain higher borrowing costs for a longer duration in order to mitigate inflation. However, individual officials have varying views on the best approach for borrowing costs. The "dot plot" revealed that four policymakers expect no cuts this year, while seven anticipate one reduction and eight project two cuts.

In a positive turn, a key measure of underlying inflation experienced a decline in May for the second consecutive month. This decline, combined with the deceleration in the core Consumer Price Index (CPI) in April, offers encouragement to Fed officials who are looking for signs to justify the commencement of interest rate cuts. These figures may indicate the initial stages of a downward trend in inflation.

The Bank of Japan's decision to maintain interest rates during its recent meeting was anticipated, but the lack of specific figures or a timeline for the reduction of debt purchases surprised traders. As more than half of the economists surveyed had expected the central bank to begin cutting purchases in June, this announcement was seen as a delay in the normalization of policy, which is crucial for the recovery of the yen.

Elsewhere, far-right parties' electoral victories across Europe impacted the euro, causing it to reach its lowest level against the dollar in a month. Analysts and investors worry that this outcome casts doubt on the future prospects of a united Europe and greater integration, potentially impacting the longer-term outlook for the euro as the world's second-most traded currency.

Adding to concerns, euro-zone industrial production unexpectedly decreased at the start of the second quarter, posing a challenge to the economy's recovery from its disappointing performance in 2023. Consequently, the euro-zone economy will rely heavily on services to sustain its growth trajectory, following a surge in the first quarter.

Apart from the Fed and BOJ, various countries including Thailand, Peru, Taiwan, and Uzbekistan have decided to maintain steady interest rates. Meanwhile, Ukraine's central bank reduced borrowing costs for the third consecutive time, taking into account the economic effects of Russian attacks on the nation's energy sector. Furthermore, Pakistan, Serbia, and Botswana have also announced rate cuts.

The global economic landscape continues to exhibit various dynamics and uncertainties. As central banks and political outcomes influence market sentiments, investors and analysts closely monitor developments to gauge the potential impacts on currencies, borrowing costs, and economic growth.

Source:
Bloomberg