Global FX Monthly Outlook - 16 October 2023

Elevated global economic and geopolitical uncertainty may boost USD safe-haven demand

EUR (1.051) ▬

  • After depreciating to below the 1.05 level against the USD due to a deteriorating domestic economy and hotter-thanexpected US macroeconomic data, the EUR soared to above 1.06, driven by rising eurozone inflation expectations and a correction in the US Treasury 10-year yield. However, the gains made by the EUR were short-lived, as they were dampened by an upside surprise in the US CPI report.
  • Despite European Central Bank (ECB) President Lagarde's statement that "officials will raise interest rates again if they have to", the markets are still pricing in a near-zero chance of another rate hike by the ECB. Moving forward, the EUR may continue to be influenced by both eurozone and US macro readings. Any indications that the ECB might cut rates before the Fed does could spell trouble for the EUR. Beyond the USD factor at play, the bloc's currency may also face pressure due to the ongoing economic weakness in China.