Global FX Monthly Outlook - 17 July 2023

EUR (1.123) ▲

  • The EUR has appreciated above the 1.12 level against the USD for the first time since February 2022, primarily due to the decline of the USD index below the 100.0 threshold amid lower-than-expected US June's inflation readings. The signs of growing disinflationary forces in the US, coupled with hawkish European Central Bank (ECB) minutes, has helped to support to the bloc's currency.
  • With the ECB suggesting that further interest rate increases may be necessary, the EUR may continue to solidify its position against the USD towards the 1.13 level in the coming weeks. Both the ECB and the Fed are expected to raise rates by 25 bps in their July’s meetings. However, the Fed is widely expected to adopt a slightly dovish stance and pause in its next meeting due to the slowdown in US price pressures, while the ECB may continue to hike in September

GBP (1.309) ▲

  • The GBP has continued to gain ground against the USD following a surprise 50 bps rate hike by the Bank of England (BoE). Furthermore, the recent decline in the USD, triggered by the lower-than-expected US core inflation reading has helped to boost the GBP to its highest level in 15 months. The pound has also been supported by the UK's better-thanexpected May GDP figures and record-high wage growth.
  • Growing market expectations of another 50 bps rate hike by the BoE in August, coupled with a potential dovish tilt by the Fed may support the GBP to strengthen further against the USD. However, the market may closely monitor the release of the UK's June inflation data before making any significant moves. Any below-consensus reading may lead to a reassessment of BoE’s hawkish outlook.