G10 FX Weekly
Group Economics Macro & Financial Markets Research
Dollar recovery ahead
Georgette Boele, +31 20 6297789 Roy Teo +65 6597 8616
8 May 2015
Government bond developments support the euro… …while the US dollar sell-off continues Conservative win boosts sterling
Government bond developments support the euro…
year. In addition, bonds spread movements will probably
In general, expectations about monetary policy have an
become more dollar friendly.
important effect on currency behaviour. However, since March, developments in bond markets have claimed a leading role.
Conservative win boosts sterling
Initially, the 10y spread between Germany-US and EUR/USD
Sterling outperformed other major currencies following the
moved lower. In April, the recovery in EUR/USD has coincided
results pointing to an outright Conservative majority in
with higher spreads, especially for the last two weeks. The
parliament. This came as a complete surprise as polls had
euro is a very rate sensitive currency. So more favourable yield
suggested that no party would win a majority. With political
spreads are supportive. This has happened in an environment
election uncertainty now behind us, sterling rallied strongly
of an overall improvement in investor sentiment. The rally in
across the board. Going forward, the pace of fiscal
EUR/USD lost momentum around 1.14, where earlier peaks
consolidation will probably be almost 5% GDP during the next
were set (in February). We expect EUR/USD to decline below
government period. The Conservatives rely largely on
1.10 again on positive surprises of US economic data and less
spending cuts. Finally, the Conservatives promised that they
favourable spreads and/or monetary policy developments for
would hold a referendum on whether the UK should stay in the
the euro.
EU by 2017. In the long term, an in-out referendum would be a negative for UK assets.
Bond markets support the euro 10y GE-US spread
EUR/USD (inverse scale)
1.50
-0.5
Mixed commodity currencies Firmer oil prices supported oil exporting currencies like the NOK and CAD. Despite the RBA delivering a 25bp rate cut
-1.0
1.40
earlier this week, the Australian dollar recovered due to market
1.30
speculation that the monetary easing cycle in Australia has
1.20
-1.5
25bp rate cut in the third quarter of this year. As this is not fully 1.10
-2.0 Jan 14
paused. We do not think this is likely and continue to expect a
1.00 Apr 14
Jul 14
Oct 14
10y GE - US spread (lhs)
Jan 15
Apr 15
EUR/USD (rhs)
Source: Bloomberg
…while the dollar sell off continues The US dollar remained under pressure up to the release of the US initial jobless claims report on Thursday. The strongerthan-expected jobless claims supported the dollar. In contrast, Friday’s non-farm payrolls report had no significant impact, as job growth was strong, but average earnings were a bit weaker than expected. For a rally of the dollar to continue, US economic data need to surprise positively in the weeks and months ahead. It is likely that these will trigger an upward adjustment in Fed rate hike expectations for this year and next
priced in by financial markets, we remain bearish on the AUD. The NZD underperformed as financial markets priced in that the RBNZ will cut interest rates later this year. This was triggered by weaker than expected employment numbers.
ABN AMRO major currency forecasts EUR/USD USD/JPY EUR/JPY GBP/USD EUR/GBP USD/CHF EUR/CHF AUD/USD NZD/USD USD/CAD EUR/SEK EUR/NOK
08-May 1.1237 120.07 134.93 1.5459 0.7269 0.9219 1.0360 0.7905 0.7423 1.2107 9.2942 8.3993
Q2 2015 1.05 122 128 1.44 0.73 1.00 1.05 0.75 0.73 1.25 9.50 8.25
Q3 2015 1.00 125 125 1.39 0.72 1.05 1.05 0.73 0.69 1.29 9.50 8.25
Q4 2015 0.95 128 122 1.40 0.68 1.11 1.05 0.72 0.68 1.30 9.50 8.00
Source: ABN AMRO Group Economics
Q1 2016 1.00 130 130 1.47 0.68 1.05 1.05 0.7 0.66 1.31 9.50 8.00
Q2 2016 1.05 135 142 1.50 0.70 1.00 1.05 0.68 0.65 1.33 9.50 7.75
Q3 2016 1.10 135 149 1.51 0.73 0.95 1.05 0.67 0.64 1.34 9.50 7.50
Q4 2016 1.10 135 149 1.45 0.76 1.00 1.10 0.66 0.64 1.35 9.50 7.50
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G10 FX Weekly - Dollar recovery ahead
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