ING's definitive analysis of the current FX environment going into the new year
Optimism reigns! In contrast to fears at the start of the year, policy uncertainty has actually fallen. This and signs of co-ordinated growth have sent consumer and business confidence to post-Global Financial Crisis highs.
Pro-growth FX is starting to perform well. We are less worried than some by the removal of central bank liquidity. Instead, we believe the conversion of business confidence into stronger investment will be the key story for FX markets in 2018.
European and Asian FX score highly here. But this ‘Happy Hour’ by definition cannot be extended indefinitely. Stiffer headwinds may emerge towards the end of 2018 and greater weight may be given to FX backed by external surpluses.
We believe the dollar softens under most scenarios.