Hawkish overtones from the ECB, BoE and BoC have served as a wakeup call for the FX markets, highlighting the risk that the concerted removal of monetary stimulus could lead to tighter financial conditions before long.
“USD was among the biggest victims as a result, notwithstanding the Fed’s steadfast hawkishness of late. Lingering political deadlock in Washington DC and underwhelming US data has likely added to USD headwinds.
EUR could remain the biggest winner as investors unwind policy divergence and carry trades, funded in the single currency.
At the same time, the GBP outlook may not improve as much, especially if UK data continues to disappoint and political uncertainty persists,” CACIB argues.