FX Markets

FX Markets Weekly Wrap

FX markets likely to remain volatile into year-end

After rallying to its highest level of the year last week, the US dollar seems set to end this week broadly unchanged. In our view, this reflects the offsetting effects of rising short-term yields in the US (particularly after Chair Powell’s comments to Congress on Wednesday) and falling long-term yields amid growing concerns about the Omicron variant. Despite today’s mixed payrolls report, we think the bigger picture remains that sustained inflationary pressures in the US are likely to support faster policy normalisation by the Fed and keep the dollar strong. In addition to uncertainty about the Omicron variant, we expect next week’s CPI data from the US and the wide range of central bank meetings to keep volatility in FX markets elevated throughout December.

3 December 2021

FX Markets Update

We anticipate that the rand will remain weak

The South African rand has rallied over the past few days after reaching its lowest level against the US dollar in more than a year following last week’s news about the Omicron variant. Even if the new variant doesn’t lead to a major round of renewed virus containment measures, we think that the currency will remain under pressure from both domestic and external headwinds for much of 2022. In view of the wider interest, we are also sending this FX Markets Update to clients of our Africa Economics Service

1 December 2021

Nordic & Swiss Economics Update

Pandemic-era lessons for the Swiss franc

Given the uncertainty around Omicron, and the revealed preference of the SNB in recent weeks to largely stay out of the FX market, we would not be surprised to see the Swiss franc rise further against the euro in the near term. But any upside is limited, and the balance of risks is tilted towards depreciation in 2022. In view of the wider interest, we are also sending this Nordic and Swiss Economics Update to clients of our FX Market Service.

1 December 2021

Key Forecasts

DM

2021

2022

2023

EM

2021

2022

2023

DXY

94.90

95.08

92.75

USD/CNY

6.50

6.90

6.70

EUR/USD

1.15

1.15

1.20

USD/INR

75.00

76.00

77.00

USD/JPY

115.0

115.0

115.0

USD/RUB

74.00

76.00

76.00

GBP/USD

1.35

1.35

1.35

USD/BRL

5.50

6.00

6.00

USD/CAD

1.25

1.28

1.32

USD/MXN

20.50

21.50

21.50

AUD/USD

0.72

0.70

0.70

USD/ZAR

15.25

16.50

16.00

Sources: Refinitiv, CE; all values are year-end forecasts


FX markets likely to remain volatile into year-end

FX Markets Weekly Wrap

9 December 2021

Our view

We forecast that long-term bond yields will continue to rise across most major economies and especially in the US, where we think inflationary pressures are particularly strong. Otherwise, we think that the returns from most risky assets from here will be far less impressive than they have been since the spring of last year. That reflects not only a view that bond yields will climb further, but also how we see limited room for global growth to surprise on the upside and how, in many cases, valuations already appear quite stretched. Meanwhile, we think that the US dollar will grind higher from here on the back of a hawkish shift by the Fed relative to most other major central banks, and ongoing uncertainty around the strength of the global recovery.

Latest Outlook

FX Markets Outlook

We think the dollar’s summer rally may resume

Although it has fallen back a bit over the past three weeks, the dollar has been on the front foot for much of the summer and we think it will make some further headway over the next few months. In part, the dollar’s strength in the past three months overall has been the result of safe-haven flows driven by renewed concerns about the spread of new variants of COVID-19 and, perhaps, the uncertainty around China’s slowing economy and problems in its financial system. More importantly, the Fed’s hawkish pivot at the June FOMC meeting highlighted the strength of the US recovery and pointed to a relatively rapid pace of monetary policy normalisation (at least when compared to the standards of other major economies). While the economic data have been somewhat mixed since then, we continue to think that interest rate differentials will provide further support for the dollar, in particular vis-à-vis the euro, yen, and renminbi. CE Spotlight 2021: The Rebirth Of Inflation? We’re holding a week of online events from 27th September to accompany our special research series. Event details and registration here.  

10 September 2021