Articles
24 September 2020

FX Daily: The bad mix helping the bad dollar

Downgrades to growth expectations, the lack of imminent fiscal stimulus and US election uncertainty is not the mix under which cyclical FX would thrive. In the near-term, we think USD and the safe-haven JPY are likely to outperform

USD: The bad mix helping the bad dollar

USD continues to gain ground as concerns about rising Covid-19 cases induce a slowdown in the global economic recovery, which is weighing on stock markets and cyclical FX, in turn benefiting the oversold anticyclical dollar.

The latest comments from Fed officials about the need for more US fiscal stimulus (which looks unlikely any time soon) added further fuel to the fire, while the risk around the November US Presidential election was underscored by President Trump’s comments where he did not pre-commit to a peaceful transition of power if he loses the November ballot (focusing on the legitimacy of mail-in voting).

Downgrades to growth expectations, the lack of imminent fiscal stimulus and US election uncertainty is not the mix under which cyclical FX would thrive.

Near-term, USD and the safe-haven JPY are likely to outperform.

EUR: Re-rating of global growth negative for EUR and European FX

EUR/USD continues to decline as the re-rating of global growth expectations is weighing on global trade levered EUR (vs the anticyclical dollar and the closed US economy).

Equity futures pointing to a further decline should keep the euro on the back foot today. And German IFO numbers are unlikely to change the trend today.

In Switzerland, the central bank will remain on hold. In the CEE FX space, CZK decoupled from the falling PLN and HUF yesterday not helped by the overly dovish Czech central bank - no easing signalled. With HUF under pressure this week and the currency close to its all-time low vs the EUR, we see a growing risk of a hike in 1-week depo facility (as soon as today) in order to stabilise the currency

GBP: New support measures for the economy unveiled

UK chancellor Rishi Sunak is set to unveil a new set of measures to support the Covid-19 hit economy today. These should include wage subsides (replacing the furlough scheme) and extension of the loan scheme.

GBP to continue exhibiting lower sensitivity to global factors, with Brexit-related risks being the key currency driver.

NOK: The Norges bank meeting a non event for the battered NOK

We expect Norges Bank to remain on hold too today.

Following the upward revision to the interest rate forecast at the prior meeting, we're not looking for any material change this time. While the central bank's forward guidance suggests it will be one of the first European central banks to hike in the upcoming cycle, this is now priced in.

The risk environment should remain the prime driver of the currency. The rise in Covid-19 cases is denting risk sentiment, the low liquidity NOK has turned into the G10 underperformer – as was the case during the market sell-off in the spring, when the krone was the worst performing G10 currency.


Disclaimer

"THINK Outside" is a collection of specially commissioned content from third-party sources, such as economic think-tanks and academic institutions, that ING deems reliable and from non-research departments within ING. ING Bank N.V. ("ING") uses these sources to expand the range of opinions you can find on the THINK website. Some of these sources are not the property of or managed by ING, and therefore ING cannot always guarantee the correctness, completeness, actuality and quality of such sources, nor the availability at any given time of the data and information provided, and ING cannot accept any liability in this respect, insofar as this is permissible pursuant to the applicable laws and regulations.

This publication does not necessarily reflect the ING house view. This publication has been prepared solely for information purposes without regard to any particular user's investment objectives, financial situation, or means. The information in the publication is not an investment recommendation and it is not investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Reasonable care has been taken to ensure that this publication is not untrue or misleading when published, but ING does not represent that it is accurate or complete. ING does not accept any liability for any direct, indirect or consequential loss arising from any use of this publication. Unless otherwise stated, any views, forecasts, or estimates are solely those of the author(s), as of the date of the publication and are subject to change without notice.

The distribution of this publication may be restricted by law or regulation in different jurisdictions and persons into whose possession this publication comes should inform themselves about, and observe, such restrictions.

Copyright and database rights protection exists in this report and it may not be reproduced, distributed or published by any person for any purpose without the prior express consent of ING. All rights are reserved.

ING Bank N.V. is authorised by the Dutch Central Bank and supervised by the European Central Bank (ECB), the Dutch Central Bank (DNB) and the Dutch Authority for the Financial Markets (AFM). ING Bank N.V. is incorporated in the Netherlands (Trade Register no. 33031431 Amsterdam).