Week Ahead: Gloomy GBP, Grounded EUR, USD Into FOMC, JPY Into BoJ

Credit Agricole CIB FX Strategy Research notes that UK election has resulted in a hung parliament, adding a layer of political uncertainty to the already gloomy GBP outlook. 

“We remain bearish GBP in the near-term also given that the election outcome will likely underpin the cautious outlook of the BoE next week,” CACIB argues. 

On the EUR front, CACIB notes that the focus will be on the first round of the French legislative election on Sunday

“That said, the ECB has signalled it is in no hurry to unwind its monetary stimulus so long as inflation remains firmly below its target. This could keep EUR grounded for now,” CACIB adds. 

On the USD front, CACIB notes that investors will focus on the FOMC meeting next week in our view.

“The Fed should hike rates but keep its forward guidance noncommittal about future rate moves given the softer inflation data of late. Investors will look for more clarity on the timing of the reduction of the Fed’s balance sheet. Indications that a decision could come as soon as September could boost UST yields and USD,” CACIB argues. 

On the JPY front, CACIB notes that the BoJ meeting next week could attract more attention than usual given recent reports suggesting that the bank would conduct simulations to assess the impact of a potential QE-exit.

“We suspect that the policy meeting will downplay such risks and this may mean that the latest JPY rebound would not be sustained,” CACIB adds. 

Source: Credit Agricole CIB Research

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