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We think the dollar rally has paused, not ended

Amid mounting concerns about the global growth outlook as more central banks raised policy rates, the US dollar looks set to end the week broadly unchanged against most major currencies. Although we suspect the greenback may struggle to make new highs in the near-term, we think the backdrop will remain favourable for the dollar over the coming quarters. If, as we anticipate, the US (and global) economy slows, but avoids recession, we think the US will remain relatively well-placed to weather tighter financial conditions. And if downside risks to economic activity materialise, then the dollar would probably benefit from “safe-haven” demand, as has been the case for much of this year. Asia Drop-In (30th June, 09:00 BST/16:00 SGT): Are Asia’s central banks behind the curve? Can the Bank of Japan and People’s Bank of China continue to go against the grain? Find out in our special session on what global monetary tightening looks like in Asia. Register now.  

24 June 2022

Answering your questions on our market forecasts

We held a Drop-In on Wednesday to discuss what the evolving outlook for monetary policy and global growth means for our markets forecasts. This Update recaps the key questions we addressed in the Drop-In and answers several of the questions that we received but didn’t have time to answer during the event.

24 June 2022

Revising down our forecasts for riskier currencies

With the outlook for the global economy worsening further and the Fed still on the war path, we have revised down our forecasts for many G10 “high-beta” currencies and several EM currencies. Asia Drop-In (30th June, 09:00 BST/16:00 SGT): Are Asia’s central banks behind the curve? Can the Bank of Japan and People’s Bank of China continue to go against the grain? Find out in our special session on what global monetary tightening looks like in Asia. Register now.  

24 June 2022
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EMs stepping up to support currencies

A handful of EM central banks have ramped up FX sales to provide support to weakening currencies over the past couple of months. And with inflation high and the US dollar likely to strengthen further, others could follow suit. FX intervention is unlikely to prevent further depreciation, but central banks with healthy FX reserve buffers may have some success in slowing the pace of currency falls. In view of the wider interest, we are also sending this Emerging Markets Overview Update to clients of our FX service.

Gilts to struggle sooner, equities to struggle for longer

We haven’t changed our forecast that the Bank of England will raise interest rates from 1.25% now to a peak of 3.00% by the middle of next year. But we do now think that a number of other central banks will raise interest rates faster and to higher levels to try and get on top of inflation. As a result of these global factors, we now think that 10-year gilt yields will rise from 2.35% currently to a peak of 3.00% by the end of this year rather than to 3.00% by the middle of next year. We also think the FTSE 100 will fall from 7,050 now to a trough of around 6,600 by the end of next year (rather than to a low of 6,800 by the middle of next year). In other words, rises in global interest rates and the toll they will take on activity will result in the prices of gilts falling faster and UK equity prices falling further and for longer.

23 June 2022

OPEC+ policy, Egypt’s orthodox shift and FY22/23 budget

Next Thursday's OPEC+ meeting may drop some hints about the future for the group's oil output beyond September and we think that quotas are likely to be lifted. If that’s the case, the Gulf economies would be major beneficiaries. Elsewhere, comments from Egypt’s finance minister suggest that officials are becoming more receptive to a weaker pound, adding to hopes that the move to a more flexible exchange rate is the real deal. A weak currency is a concern given the growing sovereign FX debt burden, but the country’s FY2022/23 budget passed this week does at least highlight a commitment to fiscal austerity.

We still think the backdrop is favourable for the US dollar

Although it has fallen back a little recently, we continue to think the greenback will appreciate further against most currencies as global economic growth disappoints. Asia Drop-In (30th June, 09:00 BST/16:00 SGT): Are Asia’s central banks behind the curve? Can the Bank of Japan and People’s Bank of China continue to go against the grain? Find out in our special session on what global monetary tightening looks like in Asia. Register now.  

23 June 2022

We think headwinds to sterling are growing

We expect the pound to weaken further against the US dollar over the rest of 2022 as the BoE fails to keep pace with the Fed’s tightening cycle and appetite for risk continues to weaken.

22 June 2022
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