when the Federal Reserve raises rates but rise once rates eventually reach their peak .
Additionally , equities have surprinsgly outperformed this year and the VIX Index – a measure of equity market volatility commonly known as the “ fear index ” – has stayed below its long-term index average of 20 for over three quarters of this year . In comparison , we saw the VIX Index above 20 for over 90 % of the time in 2022 .
This only adds to the picture of an uncertain economy , and the divergence between bond and equity markets could lead to further jolts in FX volatility as we head into 2024 .
Quantitative tightening to reduce the economy ’ s money supply , as imposed by central banks , has been mirrored in the credit space . In fact , one of the most aggressive credit tightening cycles is potentially coming to an end , although the impact of higher credit rates is still feeding through .
The result of this tightening is that 40 % of consumers across 28 markets expect their disposable income to fall in the next year , potentially driving down consumer spending .
For years , consumers have relied upon cheap credit . In December 2020 , at the height of the pandemic , the world ’ s negative-yielding debt pile hit a record high of US $ 18tn and home prices in the US , UK and Germany rose by an average of 30 % from the start of 2020 to mid-2022 .
But since then , the battle against rising inflation has shifted the landscape of credit in the private sector . Today , shortterm interest rates and mortgage rates in G10 countries have hit a 14-year high , and
“ As we near the peak of high interest rates and ponder the timing of future rate cuts , volatility in , and divergence between bond and equity markets could materially alter the outlook for FX rates ”
GEORGE VESSEY LEAD FX & MACRO STRATEGIST , EUROPE fintechmagazine . com 45