Global FX Monthly Outlook - 16 November 2023

Further signs of US economic weakness and a dovish Fed to benefit G10 currencies

EUR (1.086) ▲

  • The market has once again embarked on a dovish repricing of Fed rate expectations due to the below consensus US key macro readings. According to the CME FedWatch tool, markets are currently pricing in at least four rate cuts starting in May 2024 due to indications of a softening US labour market and diminishing inflationary pressures. As such, the USD has significantly weakened, propelling the EUR to appreciate by over 3.0%, closing near the 1.09 level.
  • Sluggish eurozone economic activity, coupled with the prospect of a dovish ECB, is poised to persist as headwinds for the bloc's currency in the coming weeks. This combined with the lack of progress in the proposed reform of the bloc's fiscal rules may further weigh on the EUR. Nevertheless, the possibility of a further decline in the USD index (DXY), driven by indications of vulnerabilities in the US economy and the inevitable conclusion that the Fed rate has reached its peak, could potentially support the EUR at its current level.