To mark the beginning of the new quarter, HSBC discuses in a note to clients this week its 2 core calls on the currency markets for the rest of the year.
1- EUR will come under pressure.
“This is an important view given the size and the scope of the euro as a currency. However, from a consensus point of view it seems we are in the pack. Here we feel the differences between the Fed and the ECB will define the currency performance. The Eurozone is coming very close to deflation and some type of QE policy is just a matter of time, whilst the Fed is starting to talk about rate hikes,” HSBC clarifies.
2- Cable will fall.
“This is perhaps our most controversial forecast and the price action is testing our resolve. Unlike our EM call we do NOT see a continuation pattern. Here we fear the UK balance of payments position will become problematic for the currency as the year progresses. We, as forecasters, have to decide what will become a major driver for the currency in the future and a current account deficit of 5.4% of GDP is very high on our list. What is particularly disturbing is that a deficit of this size is usually associated with a late cycle blow out, not as a starting point for a recovery,” HSBC argues.