Sterling and loonie to resist dollar storm, euro points to the downside – Standard Chartered

A two-tier USD is possible in the view of economists at Standard Chartered. GBP/USD could see further gains whilst EUR/USD could remain under downward pressure.

Key quotes

“The Fed confirmed it expects a hot economy and prefers a “chilled” monetary policy, even as longer-term yields rise. In the near-term, this cocktail is likely to temporarily support the USD.”

“EURUSD will likely drift below 1.18 as vaccination execution delays keep ECB very dovish. A USD rally is also likely to lead the low-yielding CHF and JPY to rally towards 0.94 and 110, respectively. However, #USD strength is unlikely to dominate entirely over a 1-3 month horizon.”

“We expect USD/CAD to continue to slide towards 1.22 and GBPUSD to push towards 1.42 as US economic expansion and vaccinations allow respective central banks to move towards policy normalisation.”

“USD/CNH could drift towards 6.40 again in the coming weeks as economic data remains strong.” 

“RBA and RBNZ remain dovish, but they are unlikely to act to prevent their currencies from pushing towards 0.80 and 0.74, respectively.”

“On a longer 6-12m horizon, though, we continue to expect the USD to weaken. Rising inflation is likely to follow today’s rising yields, resulting in an eventual fall in real (netof-inflation) yields, especially relative to other major currencies. This would be bearish for the USD medium-term.”