Trump to trade, from Draghi to the dollar, ING’s global economists and strategists tell you what’s happening – and is likely to happen – in the world of global markets. Years of experience lead to informed, authentic and accurate opinions on multiple topics and you are now able to understand just what ING thinks about economic trends and developments.
The Year 2023
March 2023 Edition: As we enter March, what has become clear to financial markets is that inflation is proving far stickier than most had felt at the start of the year. The dramatic repricing higher of global money market curves has lifted the dollar and presented an increasing headwind to risk assets. A return to the disinflation and weaker dollar narrative will have to wait.
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The Year 2021
G10 FX Week Ahead/ June 2021 Edition: The Fed meeting is the last big event before the summer period and will likely set the market tone for the coming weeks. After all markets seem quite comfortable with the view that Fed tapering could start in December this year, with the first rate hike in early 2023. Our opinion is that the USD should marginally lose out and that we see a low volatility rally in EUR/USD this summer – perhaps even to the 1.25 area. The calendar in the week ahead looks very light. And perhaps there will be more of a focus on the US-EU summit – and perhaps some word of a global tax deal.
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March 2021 Edition: Supreme confidence in the global recovery and central banks in no hurry to tap the breaks have combined to deliver a sizeable bond market sell-off. The adjustment has erred to the disorderly and prompted some adjustment in positioning – especially in FX markets. The currencies most susceptible to this correction have been the low-yielding JPY and CHF – both currencies the least positively correlated with a global recovery. In short, this means we regard the current dollar rally as a bear market bounce and remain fully invested in a second-quarter story of a broadening global recovery, which should lift all currencies – including the EUR. A corrective dip in EUR/USD to 1.17/18 should still be followed by a recovery to 1.25 this summer.
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February 2021 Edition: The early year consensus of a broad dollar decline looks like it will be further challenged this quarter. Having fallen 14% from its highs in March last year, broader trade-weighted measures of the dollar registered a 2% recovery in January. Driving this so far modest correction has been a mixture of rising US Treasury yields and more recently correcting commodity and equity markets – as confidence in the 2H synchronised recovery wanes. Despite ECB threats to cut rates, we still expect EUR/$ to be pressing 1.25 this summer and possibly break above it amidst broad global growth into year-end.
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The Year 2020
October 2020 Edition: The widening of Joe Biden’s lead in the opinion polls is giving markets a sense of reassurance that the election will not be contested. Thereafter our preference remains for a rally to 1.25 throughout 2021 as clarity emerges on a potential Biden White House and what it means for a return to a rules-based trading system. The ECB may not like the EUR/USD rally – but may have to accept it as part of the global reflation trade. Our preference for benign outcomes is also premised on: (i) the UK and the EU securing a free trade deal (probably by the end of November) and (ii) the EU Recovery Fund continuing to progress and being implementable in early 2021.
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September 2020 Edition: The Fed’s shift to Flexible Average Inflation Targeting (FAIT) has been, and will continue to be, a significant bearish factor for the dollar. This reflationary policy embeds an assumption that a weaker dollar will play a role in stimulating US growth and allow the Fed to reach its goal of full and inclusive employment. What may be more important, however, is that a weaker dollar will export looser monetary policy around the world – a positive move for cyclical currencies including the EUR, commodity and EM currencies in general.
Febrile conditions ahead of US November Presidential elections may well keep risk assets in check – hence our 1.20 EUR/USD forecast for year-end. But we now feel comfortable with most scenarios dragging EUR/$ to 1.25+ through 2021. In theory, reflationary policy should be good for the equity-driven Asian currencies.
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May 2020 Edition: Over the last month we have seen a wave of confidence lift the high beta, commodity currency bloc – especially those EM currencies which had been hit hardest. At the same time concerns over a resumption in the US-China trade conflict has seen Asian FX underperform. What we have not seen, yet, are signs of a clear dollar bear trend emerging. That is still our call for the second half of the year – but several factors will need to fall into place first.
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March 2020 Edition: The unique nature of this crisis and collapse in risk assets has exposed fragilities in the system – think leverage, think liquidity. And surprisingly USD funding stresses have re-emerged despite the lessons supposedly learned in 2008. In the FX market, the dollar has so far been the only winner in this crisis. With policy rates now near zero in many countries and unconventional monetary policies widely deployed, the FX recovery against the dollar is likely to be tentative at first. Commodity currencies look certain to lag, but those countries employing pro-active fiscal policy (Asia and Europe) may be the first to bounce.
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