perspectives d’investissement

    G10 FX Monthly: Turning tactically neutral on sterling

    G10 FX Monthly: Turning tactically neutral on sterling
    Vasileios Gkionakis, PhD - Responsable de la stratégie FX globale

    Vasileios Gkionakis, PhD

    Responsable de la stratégie FX globale
    Kiran Kowshik - Stratège marchés des changes

    Kiran Kowshik

    Stratège marchés des changes

    Key takeaways

    • We remain bearish on the dollar for 2020 based on the narrowing of the US-rest of world growth rate differential, stabilisation in the US-China trade developments and a fundamental inability of US yields to move higher 
    • We expect EURUSD to come under some modest upside pressure, reaching 1.15 by the end of the year
    • We have revised lower our GBP forecasts, as BoE members have recently become more dovish. Because of the lower dollar, we see GBPUSD ending the year above current levels, but below its highs of around 1.35
    • USDJPY appears toppish at 110, while CHF’s recent strength is likely to fade


    The start of the year has seen the dollar strengthening modestly against G10 currencies, but evolving more disparately vs EM FX. However, the USD’s consolidation has only partly erased its losses in Q4 19, when the Bloomberg USD index fell by nearly 3%. In our view, this fragile dollar rebound mostly reflects a near-term correction and is lacking any fundamental backing.

    The fragile dollar rebound is lacking any fundamental backing

    While global growth will remain slow, the US-rest of the world (RoW) growth differential is narrowing, as the domestic US fiscal impulses have faded by now. Additionally, the dynamics of US yields appear asymmetric in nature: upside seems quite limited, while the room for downside (due to the Fed potentially easing further) is more ample. Moreover, the main driving force of USD gains in late 2018 and early 2019 is normalising, as US and China trade frictions appear to have eased. All this should result in dollar losses during 2020, with cyclical G10 FX and emerging market currencies benefiting to varying degrees.

    We hold on to our constructive view on the euro.

    Notably, we hold on to our constructive view on the euro, targeting 1.15 for EURUSD by the end of the year. In the near term, we see GBPUSD caught in a tight range of 1.28-1.32 due to various offsetting factors. Bank of England (BoE) members have recently become more dovish, suggesting some additional headwinds for sterling. However, we expect that USD downside will eventually drag cable higher by year-end.

    We hold a similar view for the yen: near term, we see no catalyst that could allow USDJPY to break sustainably out of the 108-110 range, but history suggests that the dollar factor should eventually dominate. Hence, we are somewhat bearish USDJPY over the medium term.

    In contrast, we anticipate that the recent strengthening of the Swiss franc will end, as the SNB defends – via FX intervention and/or interest rate cuts – the area of 1.07-1.08 for EURCHF.

    The recent strengthening of the Swiss franc will end.

    Elsewhere, we prefer cyclical currencies with exposure to global trade (which we expect will rebound modestly this year), with healthy economic fundamentals and monetary policies that either are following a holding pattern or have already priced in material easing. NOK and CAD fit this bill, as does the AUD to some extent.

    The risk to our views relates – once again – to trade developments. If the US-China trade détente collapses, then markets will start chasing the dollar higher (due to its safe-haven status), and a repeat of 2018/2019 is likely to ensue. A full-blown confrontation between the US and Iran would not only trigger a rise in risk aversion, but could also spawn a global recession via potentially higher oil prices that would curb consumer firepower. Again, in this scenario, the dollar would rise.

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