Our team forecast US growth at just 0.5% next year versus the consensus of 1.0%. This is premised on tighter financial conditions finally weighing enough on aggregate demand to see US growth converge on the stagnant trajectories, especially in Europe. Currently we forecast 150bp of Fed easing starting next May/June. US slowdown is central: Our forecast for a higher EUR/USD next year hangs wholly on the view that the US will slow down, inflation will ease and the Fed will be able to make monetary policy less restrictive. Let’s see how the start of 2024 progresses and whether the BoJ is prepared to make its move after all. Big policy changes in Japan can have a big impact on USD/JPY as in 2013. However, we have some quite aggressive forecasts for a lower USD/JPY on the back of a weaker dollar and finally a proper Bank of Japan exit from ultra-loose policy. On the subject of carry, lower volatility favours the carry trade and also the yen as a funding currency. USD/CAD should come lower too, and while Canada’s high yield helps, its proximity to the US may be more of a burden in 2024. We are also bullish on the NZD/USD and are interested in whether the new government changes the Reserve Bank of New Zealand’s remit – a potentially bullish factor for NZD. A hawkish Reserve Bank of Australia should not hurt either. The release valve of lower US rates should allow the Aussie dollar to lead the currency recovery against the US dollar. High US rates and weak Chinese growth have repressed it and made it the most undervalued currency in the G10 space. Our favourite currency in 2024, however, is the Australian dollar. Our favourite currency in 2024 is the Australian dollar Both central banks would prefer stronger currencies and the krone probably has a better chance of a recovery in 2024 given a stronger economy and its more severe undervaluation after the rally in energy prices. Both the Norwegian krone and the Swedish krona are undervalued – the krone more so. Having outperformed this year, we expect the Swiss franc to be flat against the euro in 2024 as the Swiss National Bank seeks more stability than strength in the nominal trade-weighted franc.īetter positioned in Europe we think (and conditioned on a lower interest rate environment) are the Scandi currencies. Neither does GBP/USD, given our mildly bullish view on EUR/GBP and 100bp of Bank of England easing. Looking across the currency blocs then – after relatively range-bound trading into year-end – we expect the dollar bear trend to pick up a little pace into the second quarter of 2024 as the short-end of the US curve starts to come substantially lower.Įuropean FX should be lifted, but stagnant eurozone growth and the risk that the European Central Bank cuts too early suggest that EUR/USD does not lead this rally. Notably, the euro and sterling do not have such protection. Their extreme undervaluation provides some much-needed protection against any continuing dollar strength. As outlined in our Behavioural Equilibrium Exchange Rate (BEER) model below, the commodity currencies are the most undervalued in the G10 space. To speak of ‘reflationary’ policy right now seems criminal – but the Fed has a dual mandate, and if inflation is coming under control through 2024 it can cut rates to ameliorate the impact on the labour force.īullish steepening of the US yield curve normally favours the commodity currencies, and that's our conviction call in the G10 space. To challenge the dollar, currencies will need a lot of protectionĪ typical financial market response to the start of a Federal Reserve easing cycle would be a bullish steepening of the US yield curve on the prospect of reflationary policy coming through.
0 Comments
Leave a Reply. |
AuthorWrite something about yourself. No need to be fancy, just an overview. ArchivesCategories |