Europe FX dominated by politics, commodity FX trapped by Trump – ING

In terms of relative performance in Europe, analysts at ING still expect GBP to fare poorly as the European politicians have little incentive to offer the UK an attractive deal post Brexit.

Key Quotes

“A UK economic contraction in 2Q17 and the risks of an early general election or second Scottish independence referendum stand to send GBP/USD close to 1.15 and EUR/GBP to 0.90 in 1H17.”

“Expect the CHF to outperform in the early part of 2017, but more sustainable outperformance should come from the undervalued SEK. We especially favour NOK/SEK lower, where SEK will be looking to emulate the NOK’s 2016 move to fairer valuations.” 

“The $-Bloc currencies look a tough call in 2017, trapped between the themes of: (1) rising US yields; (2) a global infrastructure boost lifting industrial metals; and (3) the threat of protectionism. We probably see NZD as most vulnerable to the story of higher US yields in 1Q17. CAD is the most undervalued of the three (CAD, AUD, NZD) but investors probably have to better understand Trump’s NAFTA plans before re-pricing it.”