Africa fueled with optimism with prospect of US interest rate cut in 2024

Emerging and frontier markets in Africa now have a reason for cautious optimism in 2024 following a recent announcement by The Federal Reserve (Fed) signaling possible cuts of up to 75 basis points in the coming year.
New forecasts from central bank officials showed a turn from the hawkish rate environment Fed Chairman Jerome Powell had indicated as recently as this month. With investors betting that US interest rates have peaked, the prospect of lower Fed rates fuels optimism for Africa in 2024. Higher interest rates in the United States helped feed into a stronger US dollar, with foreign exchange traders incentivized to obtain greater exposure to the greenback by the promise of higher yields. This has led to many African currencies posting steep declines against the greenback, making imports and commodities priced in dollars more expensive in local terms and therefore contributing to higher levels of inflation.
Higher interest rates and a stronger dollar have also made it more expensive for African countries to service dollar-denominated debt, something that has helped push nine countries on the continent into debt distress and a further 15 are at “high risk” of being unable to fulfill their repayment requirements, according to the World Bank. Zambia and Ghana have already defaulted on their debts, with Ethiopia poised to follow suit. But now the prospect of an easing monetary policy by the Fed throughout 2024 is raising hopes across Africa that these burdens could start to be lifted. As a consequence, some African currencies could also be set to make gains against the dollar in 2024 as rates come down and traders start to consider which currencies are undervalued, creating further opportunities.