Monthly Currency Update

USD: Current bull trend likely to continue

The larger USD bull trend that began in June of last year is still in place, and the recent pullback appears to be a breather before a new push higher. Despite the fact that markets have aggressively priced in Fed tightening, economists remain optimistic about the overall outlook for the US dollar. In the following months, analysts expect broad gains to extend another 2–4% against most of the G10. The dollar is becoming a more appealing investment due to rising interest rates. Growth prospects remain enticing, and geopolitical dangers signal that demand for safe-haven assets will continue.

CAD: Higher interest rates and commodity gains

In the coming months, analysts believe the CAD will be able to outperform the USD. Early in the year, growth momentum remains robust, and tight labour markets and above-target inflation suggest the Bank of Canada will have to raise rates significantly in the coming months. Firm commodities, even if oil prices have dipped from their highs, give the CAD a boost in terms of trade. The technical picture for the Canadian dollar is optimistic, and current gains should extend to 1.23 in the weeks ahead. Analysts continue to expect the USD/CAD to decline to 1.20 before the end of the year.

EUR: Ongoing war risk and policy divergence

The EUR has recovered from its March low near 1.08 thanks to market optimism over a potential Russia-Ukraine truce and a resurgence in ECB hike bets. However, experts believe the factors that would cause a hike this year are likely to be delayed. Fuel and energy costs are still at levels that reduce non-essential spending, despite the fact that they have eased since the invasion spike, and they are expected to continue to remain high as long as Russian sanctions are enforced. The chances of a peace agreement have risen, but there is still too much uncertainty for the ECB to back up the two 25-bps rate hikes that markets have priced in; with one hike being a much safer bet. Meanwhile, the Fed's hawkish tone is increasing, and policy outlooks are diverging, creating strong EUR headwinds. 

GBP: High energy prices and misguided BoE hike bets

The prognosis for the GBP is hampered by high energy prices and the Bank of England's diminishing hawkishness. While the pound was expected to outperform in Q4/Q1 due to expectations that the Bank of England would raise interest rates quickly this year, recent developments and comments from bank officials—in contrast to the increasingly hawkish Fed—now point to very limited GBP upside based on domestic drivers. The Bank of England will not meet market rate hike bets due to the UK's cost-of-living problem, with real disposable incomes expected to fall by the highest in history this year. Market expectations for rate increases to 2–2.25 percent by the end of the year are likely to disappoint with the BoE likely to stop at 1.50 percent, resulting in a lower GBP. 

We are bullish on the outlook for the Canadian dollar. The economy is strong, tracking growth in excess of 5%. Expect the CAD to move towards the 1.20

You can use Historical Currency Exchange Rates tool for observing past historical rates.