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Despite the correction in equity markets over the past month, risk premia generally remain low across financial markets. While we expect this to continue as an AI-driven bubble inflates in equity markets, this Update explores four areas that could …
3rd May 2024
Chinese policymakers won’t risk reliving the turmoil of 2015 by engineering a sudden devaluation of the renminbi . They may allow the currency to weaken gradually over the coming years to help industry deal with oversupply or to offset the impact of new …
1st May 2024
We think that the recent weakness in the Mexican peso was partly a symptom of stretched positioning. Given that risk premia still appear unusually low and the outlook for the “carry trade” is gradually worsening, we think that the peso will depreciate …
30th April 2024
The US dollar is ending the week a touch softer against most currencies despite another set of hotter-than-expected US inflation figures. But the main story in currency markets this week is the ongoing drop in the Japanese yen, which hit a new low for the …
26th April 2024
The US dollar would have to appreciate a lot further before having significant effects on the global economy and financial system. A key risk to watch for is the widening policy divergence between the US and Asia leading to a major depreciation in the …
25th April 2024
We think the headwinds driving the depreciation of the Chilean peso against the US dollar have largely run their course. We expect the Chilean peso to recover some ground by the end of the year. The Chilean peso has underperformed almost all other major …
18th April 2024
Continued resilience in the US economy looks set to delay the Fed easing cycle until (at least) the second half of this year, so we now think the greenback will stay strong against most currencies over the next couple of quarters. We now forecast the DXY …
16th April 2024
The euro has fallen sharply against the greenback this week, and we wouldn’t be surprised if it weakens a bit further in the short term. That said, we think a fall below parity in the EUR/USD rate is unlikely in the absence of a substantial divergence in …
11th April 2024
We continue to think that policymakers in China and Japan will do enough to keep their currencies from weakening much further, but the risk of a break lower in one, or both, is increasing. Push-back from the authorities in China and Japan has stabilised …
27th March 2024
We still expect the Canadian dollar to depreciate against the US dollar as interest rate differentials relative to the US widen and Canada’s terms of trade worsen. The Canadian dollar has held up well against the greenback relative to other G10 currencies …
In the wake of this week’s FOMC and BoJ policy announcements we are revising our forecast for the Japanese yen. While we still expect the Japanese yen to rebound over the course of 2024, we now project it to reach 140 by the end of the year and 135 by …
21st March 2024
The tailwinds that have underpinned the rebound in the dollar this year seem, to us, to have run their course. While we wouldn’t be surprised if the dollar stayed firm over the coming months, we still think the greenback will edge lower – particularly …
The past few months have seen risk premia compress across most financial markets, and stress across core financial markets appears lower than at any point since mid-2021. While some lingering risks remain, we think that an emerging bubble in equity …
15th March 2024
The sharp narrowing in Colombia’s current account deficit last year to its lowest level since the aftermath of the Global Financial Crisis looks encouraging, but it was entirely a result of the weakness of domestic demand. As the economy recovers, the …
4th March 2024
Almost all major emerging market (EM) currencies have fallen against the US dollar so far this year, and we think they will remain under pressure until interest rate expectations in the US shift lower again. EM currencies have been no exception to the …
21st February 2024
We expect India’s stocks, bonds, and currency to rally over the remainder of this year. It’s been a strong start to the year for India’s financial markets. The MSCI India Index of the country’s equities has been the strongest performer of MSCI’s large …
16th February 2024
The rise in US bond yields has put renewed pressure on the yen, but we think further downside is limited. We still expect Treasury yields to resume their downward trend and for the yen to benefit most among G10 currencies vis-à-vis the dollar from this …
15th February 2024
Chairman Thomas Jordan’s recent comments about the franc raise questions over whether the SNB might use FX interventions to loosen monetary conditions. But we think policymakers will use the policy rate as the main tool to achieve price stability, and …
13th February 2024
While not our base case, continued strength in the US economy would probably be a tailwind for the US dollar over the coming months. But even in that event, we think the dollar would eventually weaken as bond yields fell in the US relative to elsewhere as …
7th February 2024
We don’t expect the Australian and New Zealand dollars – which have been two of the worst-performing G10 currencies this year – to fall much further. It’s been a rough start to the year for the aussie and the kiwi: although all the non-US G10 currencies …
2nd February 2024
We project decent near-term gains in China’s equities, think long-dated CGB yields will finish the year around their current levels, and expect the renminbi to rally against the US dollar. China’s equity, bond, and FX markets were on the back foot …
19th January 2024
While sterling has outperformed other G10 currencies amid the dollar sell-off over the past couple of months, we expect it to reverse its gains against the greenback as short-term Gilt yields edge lower. So far this year, the pound has held up well …
16th January 2024
We think that most major currencies in Latin American will fall against the US dollar this year. As a result, the relatively poor returns that we expect from equities in the region in local-currency terms are likely to be even worse in US dollar terms. …
12th January 2024
While we estimate the US dollar remains only somewhat above “fair value”, the valuations of some other major currencies are at extreme levels. For these currencies – notably the Mexican peso and Czech koruna – we think reversion towards fair value could …
4th January 2024
As the year draws to a close, this Update sets out our answers to five of the most commonly asked questions about currency markets for the coming year. In short, we expect another year of muddling through for the dollar, a rebound in the yen, and growing …
20th December 2023
We think the 10-year Japanese government bond (JGB) yield will rise over 2024 as the Bank of Japan (BoJ) lifts its policy rate early next year and c onstraints on the JGB market ease . And while that may exert some upward pressure on bond yields in other …
Our view about relative economic and interest rate prospects in Sweden and the euro-zone suggests that the Swedish krona’s recent rebound may prove durable. In fact, given how far below “fair value” it appears to us, we think that the krona will rise …
4th December 2023
In this Global Economics Update , we describe eight of the biggest risks to our economic forecasts for 2024. The unusual nature of this cycle and uncertainties surrounding the transmission of monetary policy mean that the biggest risks relate to central …
30th November 2023
With the post-pandemic global monetary tightening cycle now drawing to a close, this Update takes stock of where interest rate expectations in the G10 economies stand and what that implies for the currency outlook over the coming quarter as more and more …
29th November 2023
We think the yields of long-dated local-currency government bonds in Asia will generally fall further by the end of next year, and that most regional currencies will continue to make ground against the US dollar. But we suspect some of the intra-regional …
23rd November 2023
The emerging “goldilocks” narrative is a challenge to our forecast that the dollar will appreciate a bit over the coming months while the more cyclically sensitive currencies underperform, but we continue to think that the renewed optimism about the …
17th November 2023
Growing external and domestic headwinds suggest to us that Brazilian financial markets will come under pressure over the short term and are unlikely to resume their outperformance beyond that. Brazilian assets have fared relatively well amid the ongoing …
15th November 2023
High carry EM currencies have rallied as US bond yields have fallen back and risk sentiment has improved, but we still expect most of these currencies to come under renewed pressure in the coming months. Since the peak in 2-year Treasury yields on 18th …
9th November 2023
The US dollar’s struggles over the past month or so are reminiscent of the lead up to its sharp fall in Q4 of last year, but a similar slide over the coming months looks unlikely. Instead, we continue to think that the greenback will muddle through, …
We think the Bank of Japan’s continued steps towards policy normalisation are consistent with somewhat higher JGB yields and a significant rebound in the yen over the coming quarters. To recap, the BoJ made another tweak to its Yield Curve Control (YCC) …
2nd November 2023
While we think the cyclical forces that have weakened the relationship between commodity prices and “commodity currencies” will fade before long, we suspect some structural factors – namely the US’s ongoing shift to becoming an energy exporter – mean that …
30th October 2023
We think the Chilean peso is poised for a rebound in 2024 as the headwinds from the narrowing interest rate differential and the terms of trade deterioration reverse. The Chilean peso has underperformed nearly all other major emerging market currencies …
26th October 2023
While the global backdrop continues to favour the US dollar, its rally has stalled in recent weeks and we think that, absent a major deterioration in risk sentiment, the greenback will struggle to make significant further gains. So far this month, there …
19th October 2023
The sell-off in bond markets has taken a breather today, helped in part by softer data on the US labour market. However, the scale of the moves over the past week has invoked comparisons to previous financial crises that have been caused by sharp moves in …
4th October 2023
With most European G10 central banks now at, or very close to, the ends of their tightening cycles, this note examines where the European G10 currencies stand and how we see the outlook for the main euro cross-rates. In short, we think the Swiss franc …
22nd September 2023
Although high “carry” emerging market (EM) currencies have held on to most of their gains during the greenback’s recent rally, we still think the outperformance of these currencies is likely to reverse over the coming quarters amid growing headwinds for …
21st September 2023
While policymakers’ efforts to prop up the renminbi and the yen alone are not enough to generate a lasting turnaround , they will probably do enough to buy time until US interest rate expectations and Treasury yields fall back and the dollar depreciates …
15th September 2023
We’ve revised up our projections for the S&P 500 and the 10-year Treasury yield, but still expect both to fall a bit by the end of this year. We have also tweaked our forecast for the US dollar. We had been projecting that the S&P 500 would struggle over …
14th September 2023
Although the Canadian dollar has held up relatively well among G10 currencies, we think it will weaken in the coming quarters as investors discount a more dovish policy path for the Bank of Canada (BoC). Despite the broad-based strength in the US dollar …
7th September 2023
The cyclically-sensitive antipodean currencies have had a tough year so far, and a fair bit of bad news already appears priced in to both the aussie and the kiwi. Nonetheless, we don’t think their recent rebound will prove the start of a sustained …
1st September 2023
Gilt yields and sterling have fallen from their cycle highs over the past month or so, and we think the worsening economic growth outlook in the UK and elsewhere mean that this trend will continue over at least the next couple of quarters. Although …
24th August 2023
With the headwinds growing for China’s economy, we think its equity markets will struggle, its 10-year yield will continue to fall and its currency won’t rebound as quickly as we’d thought. At the start of the year China’s economy was powering ahead. But …
17th August 2023
Exceptionally high inflation in the major economies of Central and Eastern Europe (CEE) relative to elsewhere has left their currencies overvalued against the US dollar and on a trade-weighted basis in our view. We think there is scope for these …
16th August 2023
Since our last Financial Market Stress Monitor on 13 th May, strains have continued to ease. This abbreviated Stress Monitor takes stock of developments since then. Overall, stress across core financial markets appears about as low as at any point …
10th August 2023
The appreciation in the Swiss franc this year has been largely at odds with moves in many of the factors which typically drive the currency. We believe this is mostly due to intervention from the Swiss National Bank (SNB) in foreign currency markets. …
7th August 2023