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.”