perspectives d’investissement

    FX Monthly Outlook 2020: is the dollar heading for a secular decline?

    FX Monthly Outlook 2020: is the dollar heading for a secular decline?
    Vasileios Gkionakis, PhD - Responsable de la stratégie FX globale

    Vasileios Gkionakis, PhD

    Responsable de la stratégie FX globale
    Homin Lee - Stratège macro - Asie

    Homin Lee

    Stratège macro - Asie
    Kiran Kowshik - FX Strategy

    Kiran Kowshik

    FX Strategy

    Key takeaways

    • A normalisation in US-China trade disputes and a modest pickup in global trade are both prerequisites and central to USD weakness in 2020
    • Under this (base-case scenario), we expect the overvalued USD to adjust lower and EURUSD to be supported by valuations as well as some improvement in global trade
    • Sterling should continue to benefit as the disorderly Brexit premium is priced out
    • The Swiss franc is likely to weaken modestly while the Japanese yen may trade weaker in the near term but eventually regain its ground against the softer USD
    • Finally, in China we expect the normalisation of global trade, together with a recovery in emerging market growth, to underpin the CNY.


    In 2019, the dollar managed to hold on to its 2018 gains driven by the flaring up of political/trade uncertainty and a deceleration in world growth. However, as we head into 2020 these factors appear to be dissipating.

    Risk factors appear to be dissipating

    US and China trade talks are making (small) positive progress while concerns over a disruptive no-deal Brexit seem to be abating.

    In parallel, global manufacturing activity has bottomed out and is likely to recover, albeit sluggishly. Although uncertainties remain, the decline in tail risk premia is likely to trigger a correction of fundamental misalignments in the currency market.

    More specifically, we expect the overvalued dollar to adjust lower while EURUSD to appreciate driven by valuations as well as some pick up in global trade.

    We expect the overvalued dollar to adjust lower

    We anticipate the Swiss franc to weaken modestly against the EUR as uncertainty is repriced lower. This should also mean that USDJPY trades more firmly in the near term. However, we expect JPY to regain some ground eventually, on the back of undervaluation and USD weakness.

    Sterling should benefit further, especially towards the early part of next year. We think it is likely that the Conservatives will master a majority in the UK parliament, sufficient to ratify the EU/UK deal signed in October. Regardless of the exact election outcome, we feel that developments during H2 19 suggest that the risk of a disorderly Brexit has decreased significantly.

    Sterling should benefit further

    Turning to China, we expect the normalisation in global trade, together with a pick up in emerging market growth, will underpin the CNY. We target USDCNY at 6.80 by end of 2020.

    In parallel, our working assumptions on global developments for next year alongside valuations should support the Australian and the Canadian dollars. In the Nordics, we expect NOKSEK upside to gain more traction as Norway’s outperformance vis-a-vis Sweden becomes more evident.

    There are both upside and downside risks to our forecast trajectory. On the one hand, a more “abrupt” trade resolution – involving a significant rollback of existing tariffs – would likely push the dollar much lower. On the other hand, a complete US-China fallout would risk a global recession and flight to safety would trigger another sharp USD appreciation.

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