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Although the rally in the US dollar has seen a significant reversal over recent weeks, indicators from past turning points in the greenback suggest to us that there remains scope for the dollar to reach fresh cyclical highs if, as we expect, a global …
29th November 2022
Despite its strength this month, we think the headwinds facing the South African rand remain in place and expect it to reach fresh lows against the US dollar through the middle of next year. Amid the broad-based weakness in the dollar following the …
23rd November 2022
High carry emerging market (EM) currencies have generally fared better than their low carry counterparts over recent months, but we doubt this will continue. We think currencies in EM Asia will fare best over the next two quarters, despite their low …
18th November 2022
The negative correlation between the US dollar and the price of oil has reasserted itself in recent months, and we think it will persist as the looming global recession pushes the dollar higher and oil price lower. Although the price of oil hasn’t risen …
16th November 2022
Despite the recent sharp drop in the greenback, we doubt this is the end of the dollar bull market. Yesterday’s softer-than-expected US CPI print prompted the largest single-day drop in the DXY index since December 2015. Indeed, it was one of only a …
11th November 2022
While the renminbi, and many other currencies sensitive to the outlook for China’s economy, have rallied sharply against the dollar on hopes that China will shift away from its “zero-COVID” policy (and today’s softer-than-expected US CPI print), we doubt …
10th November 2022
Brazil’s financial markets have been some of the world’s best performers lately, supported in part by the prospect of centrist policymaking by incoming president Lula. With the presidential election now complete, and Lula set to be inaugurated soon, a …
8th November 2022
The differing tones of the Fed, ECB and BoE at their recent meetings have seen yields rise in the US more than elsewhere and reignited the rally in the US dollar. That pattern could last a few more months. But we expect falling inflation in the US to mean …
3rd November 2022
We expect the aussie and the kiwi to weaken further against the US dollar and trough around mid-2023. And while we don’t expect the aussie to outperform the kiwi as it has recently, we think it will largely cling on to its recent gains and expect the …
12th October 2022
Central banks have the tools to deal with liquidity crises arising from rising interest rates and falling asset prices. Instead, the bigger threat is that higher interest rates produce large and simultaneous falls in asset prices that threaten the …
11th October 2022
We held a Drop-In on Tuesday to discuss the growing turbulence in FX markets and our views on the major currencies. 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 …
29th September 2022
Although the latest sell-off in Gilts has been driven in part by expectations for higher interest rates, the accompanying fall in sterling suggests the risk premia attached to UK assets has risen. In our view, in the absence of a concerted attempt to …
27th September 2022
We think the yen will strengthen against the US dollar over the next few years, as the headwinds that have driven the currency to multi-decade lows begin to unwind. The yen has fallen nearly 20% against the greenback this year, the most of any of the …
13th September 2022
Notwithstanding the big policy announcements in the UK this week, we still think that the pound and the UK stock market will struggle over the rest of this year, but expect 10-year Gilts to rally. We set out what we think the “Energy Price Guarantee” …
9th September 2022
Despite the rise in volatility lately, compensation for risk across several major asset classes still seems quite low relative to history. That means, in our view, that if volatility were to remain high, it could spark further selloffs across asset …
We think a combination of domestic and external factors will push up risk premia in Brazil over the rest of this year. This informs our forecasts that the real will weaken and the country’s bonds will sell off. Brazil’s financial markets appear to have …
8th September 2022
Despite their precipitous fall against the dollar this year and last, we think the euro, sterling, and most other European currencies will weaken further over the next twelve month as the economic slowdown and the terms of trade shock that is hitting the …
31st August 2022
While EM real effective exchange rates have held up better than their nominal exchange rates against the dollar since 2021, we think there are some economies where appreciations look stretched, and nominal exchange rates may need to adjust further. …
26th August 2022
A shift in implied real yield gaps between the US and some other developed markets (DMs) have underpinned the latest rise in the greenback. We think the ongoing energy crisis in Europe means that major European currencies, in particular, will remain …
25th August 2022
Despite the broad-based rebound over the past month or so, we expect deteriorating risk sentiment to put renewed pressure on most emerging market (EM) currencies before long. This Update zeroes in on which EM currencies are most vulnerable to large falls. …
19th August 2022
The Canadian dollar has held up relatively well against the US dollar so far in 2022, but we think the factors underpinning the loonie’s resilience will fade and push it lower against the greenback over the next couple of years. The loonie has been the …
11th August 2022
We held a Drop In yesterday outlining our latest forecasts for global financial markets. This Update answers some questions that we received during that Drop In but didn’t have time to address. What would have to go right for bond and equity markets to be …
10th August 2022
While China-Taiwan tensions haven’t yet caused ructions in global financial markets, any escalation that threatened to disrupt trade and/or financial flows almost certainly would. This Update explores the potential ramifications of such an event across …
5th August 2022
We still expect a higher 10-year Treasury yield, lower S&P 500 and stronger US dollar over the remainder of the year, but have pared back our forecasts for the rise in yields and fall in equities. In particular, we now suspect the 10-year yield is …
29th July 2022
With global economic growth weakening and risk sentiment unlikely to rebound sustainably this year in our view, we think that EM currencies generally will remain under pressure over the next several months and that there are a handful of countries where …
26th July 2022
Despite their recent rebound, we still think that “high-beta” developed market (DM) currencies will weaken further against the US dollar for the remainder of the year. DM currencies have risen against the greenback over the past week or so, reversing some …
22nd July 2022
We expect the Mexican peso to fall further against the US dollar amid mounting external headwinds. As the dollar has appreciated to multi-decade highs against major developed market currencies, such as the euro and the yen, it has also extended its gains …
15th July 2022
With the DXY index surging to a fresh 20-year high, the US dollar has reached our end-2022 forecasts against several of the other major currencies. While we are sticking to our current forecasts for now, this Update considers how the factors underpinning …
We forecast a further ~2% appreciation of the trade-weighted US dollar over the rest of this year. But we continue to think that the risks are skewed towards even greater dollar strength. This Update considers what factors might deliver a more significant …
7th July 2022
We suspect that the latest political turmoil in the UK adds to the reasons to expect a renewed rise in the 10-year Gilt yield, weakness in the pound, and continued trouble for the FTSE 100. The market reaction to the resignation of Boris Johnson as Prime …
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 …
24th June 2022
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 . The US dollar has appreciated almost across the board this …
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 …
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. In our view, “safe-haven” demand has been a key driver of the latest strength in the …
23rd June 2022
The Turkish lira is once again depreciating sharply against the US dollar and we expect this to continue. We revise our forecasts for the lira and pencil in further substantial weakness by the end of 2022, to 24/$. The lira has plunged ~15% or so against …
15th June 2022
The weakening in the yen to a 24-year low and a crack in the Bank of Japan’s ceiling on 10-year yields today is putting significant pressure on policymakers to respond. FX intervention is a possibility, but we doubt it would be effective. We suspect the …
13th June 2022
While the spillovers from the renminbi’s depreciation against the US dollar over the past two months have in some ways been similar to previous periods of renminbi weakness, the impact on other emerging market (EM) currencies has differed somewhat from …
9th June 2022
While we doubt it will be the main driver of the US dollar, the ongoing reduction in the size of the Fed’s balance sheet (i.e., “quantitative tightening”, or “QT”) adds to our conviction that the greenback will continue to appreciate over the rest of the …
While it has rebounded over the past couple of weeks, we expect the renminbi to resume its fall against the US dollar as China’s economy underwhelms , interest rate differentials continue to shift against the renminbi, and the last two years’ strength of …
1st June 2022
We think that currencies in Central and Eastern Europe (CEE) will depreciate further against the euro over the rest of this year. Within the region, we anticipate that the koruna will continue to outperform and the forint will remain a regional laggard – …
12th May 2022
The Indian rupee hit a record low against the US dollar today, but the big picture is that RBI intervention has helped it hold up better than most EM currencies recently. Given that the RBI has ample FX reserves, we expect the rupee to remain more stable …
9th May 2022
We think the euro will eventually weaken further, falling to parity against the US dollar, as the euro-zone economy falters, the terms of trade shock from higher energy prices feeds through, and the global economic outlook continues to worsen. While the …
6th May 2022
We think that the surprising stability of the Turkish lira so far this year will not last much longer and we forecast it to weaken against the dollar over the coming months, from ~14.8/$ now to 18/$ by end-2022. This would be a fall of around 20% and, …
5th May 2022
We think the yen will drop even further as policy divergence widens. We now forecast USD/JPY to reach 140 by the end of this year, before dropping back as the Fed takes its foot off the gas in 2023. While it has stabilised over the past couple of days, …
22nd April 2022
With the yen falling to a 20-year low against the dollar, talk of foreign exchange market intervention is growing. While we think the bar for any intervention is high , this Update answers some key questions. 1. Who decides whether to intervene? Bank of …
21st April 2022
The Aussie and the Kiwi have been amongst the best performing G10 currencies against the US dollar so far this year but, while we expect both to remain resilient in 2022, we eventually expect them to weaken. Both the Aussie and the Kiwi have outperformed …
20th April 2022
The sharp rally in the Brazilian real against the US dollar since the start of the year has shown tentative signs of ending, and we think that it will weaken a bit through the end of 2022. The Brazilian real has appreciated by nearly 19% against the US …
14th April 2022
While the prospect of a euro-zone break-up looks more remote than during the 2017 French presidential campaign, the possibility of Marine Le Pen taking power is still a major risk to euro-zone financial markets. As we discussed here and here , the recent …
7th April 2022
Claims that the war in Ukraine will prove to be a watershed moment that ends the dollar’s position at the heart of the global financial system are wide of the mark. It could accelerate the development of smaller trading blocs that use alternative …
23rd March 2022
Our expectation that US Treasury yields will rise further leads us to conclude that the yen will weaken more against the dollar and we have revised up our end-year USD/JPY forecasts for both 2022 and 2023 . The yen has weakened sharply against the dollar …
22nd March 2022