USD and CAD to weaken vs. major European currencies over the next couple of months – BMO

Economists at the Bank of Montreal analyze the USD and CAD versus European currencies.

One of the biggest areas of uncertainty for the FX market is timing

“We expect the Fed and BoC pause to put near-term ceilings on the USD and CAD vs. the major European currencies over the next couple of months while central banks in the region pursue tighter monetary policies.”

“Further out in 2023 (i.e., 6M), we expect a portion of the strength in European currencies to evaporate as the lagged impact of tightening feeds through to growth. There are also economic hard landing risks in Europe if central banks have a more difficult time bringing inflation back to acceptable rates.”

“However, one of the biggest areas of uncertainty for the FX market is timing. There are near-term upside risks to the USD and CAD vs. European currencies if expectations for weaker economic growth in the region are brought forward, or if the USD deals with a persistent bid due to risk-off conditions in financial markets.”