The USD has been the key beneficiary of the unfolding global economic slowdown:
The CAD has lost some grip on the USD, although it is still holding up better than its peers. A more pronounced slowdown in Canadian inflation has raised the prospects of the BoC failing to match tit for tat a more hawkish Fed. Going into what could prove to be a choppy year-end, the CAD may stay on the back foot before Canada’s superior fundamentals can cement a recovery. Observe the USD/CAD trends.
EUR/USD is expected to remain under pressure in the next 3M-6M. The war in Ukraine has fanned stagflation headwinds in the Eurozone and is likely to have lasting consequences for the Eurozone’s international competitiveness, external position, relative real yields and commodity terms of trade. The ECB has embarked on policy normalization in the face of these risks. Many negatives seem to be in the price of undervalued and oversold EUR/USD , which could ultimately recover in 6M-12M.
Soaring energy costs, labour market shortages, global supply chain disruptions and persistent Brexit-related headwinds continue to plague the UK economic recovery and has complicated the BoE’s ability to normalize in the face of uncomfortably high inflation. This could keep UK real rates and yields very negative and weigh on the GBP in the near term. Recovering UK real rates and yields could usher in a cautious recovery for the GBP in H223.