Sterling to weaken into 3Q
We expect the pound to weaken into the third quarter and have revised our EUR/GBP forecast higher. Here's why
USD: The dollar to continue rising against the yen
Another fairly quiet day on the US data front, with the April University of Michigan Sentiment Index to remain broadly flat. This suggests muted price action in the dollar. Fed Chair Jerome Powell’s reiteration of the central bank's independence (following comments last week by President Trump that the Fed should cut interest rates) in a meeting with Democratic lawmakers also suggests that any imminent cuts are off the table, in turn, keeping the dollar's support in place. The mix of higher oil prices, a stable risk environment and anchored US rates points to further upside to USD/JPY, with the cross likely re-testing the 112.00 resistance level soon.
EUR: Another uninspiring set of eurozone data
In Europe, the focus is on eurozone industrial production data for February. While January industrial production was stronger-than-expected, it seems unlikely that this positive start to the year has continued into February. Our economists look for a softer number today, which should in turn constrain EUR/USD upside and keep the cross below 1.1300. Soft eurozone industrial production should further justify the European Central Bank's cautious stance, suggesting that the probability of any imminent policy normalisation is very low.
GBP: Sterling to weaken into 3Q
We have revised our EUR/GBP forecast higher and expect the cross to test the 0.88 level in the thrd quarter in response to the likely negative headline news stemming from a possible Conservative leadership battle and the subsequent market concerns about a eurosceptic Prime Minister. A partial reduction in GBP short positioning (and some build up of new speculative longs) since the beginning of the year could also add to the reversal, as GBP positioning is no longer meaningfully skewed one way. Moreover, with the six-month Article 50 extension period being too short for the Bank of England to raise interest rates, one potential supportive factor for sterling has now disappeared. This should translate into GBP/USD reaching the 1.27 level in 3Q.
MXN: Well positioned among the EM FX
USD/MXN continues to test the 18.80 support level, benefiting from a mix of rising oil prices, a stable risk environment as well as attractive carry. At this point, we see the Mexican peso as one of the most attractive emerging market currencies given the above factors as well as the upcoming easing Banxico cycle (to start no later than in 3Q19), which should be supportive for bond inflows and by extension for the peso.
Download
Download article"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).