G3: Strong Dollar, Weak Euro, Weaker Yen - RBS

Analysts at RBS suggest that the USD is set to remain strong in H1’17 as financial markets focus on looser fiscal and tighter monetary policy in the US.

Key Quotes

“A new Trump administration appears likely to prioritize tax cuts and infrastructure spending, increasing the budget deficit. The Yellen Fed is likely to respond by speeding up rate rises from one a year to two-to-three a year. The risk case for the USD will come if Trump instead prioritizes trade renegotiations and tightening immigration controls.”

“EURUSD is set to trade in a lower 1.00-1.10 range as the ECB extends its €80bn of asset purchases throughout 2017. The Eurozone has elections in the Netherlands, France and Germany in 2017 after Italy’s referendum this December. In H2’17, the EUR may start to recover losses against the USD as the ECB nears the end of its quantitative easing.”

“USDJPY will  trade 110-120 in 2017 as the BoJ keeps 10Y JGB yields anchored around zero despite rising foreign yields.”