Global FX Monthly Outlook - 16 August 2023

Volatile trading expected to persist in August amid persistent safe-haven demand

EUR (1.094) ▲

The EUR weakened back to below the 1.10 level against the USD due to rising speculation that the European Central Bank (ECB) is done raising interest rates amid build-up of disinflationary pressures and worsening eurozone PMI figures. Adding to the weakness is ECB President Lagarde's decision not to confirm another rate hike in September and the USD index’s ascent back to above the 103.0 level.

Despite the lacklustre eurozone economic outlook, a potential follow-up 25 basis points (bps) hike by the ECB in September amid the bloc's still hot and sticky inflation readings, could help push the EUR another leg up above the 1.10 level against the USD. Additionally, more evidence of the US disinflationary story, less hawkish FOMC minutes, and signs of a weaker US labour market could also help support the EUR.